How to Save Tax with Health Insurance?
Before investing in health insurance for tax planning to save tax, it’s crucial to understand important aspects that can help you achieve dual objectives effectively in financial planning.
- It assists in achieving your financial goals during a medical emergency
- To annually save on income tax.
Before you begin investing in the best health insurance to reduce your income tax liability and maintain good health, read below for some key benefits of investing in a health insurance policy:
- Health insurance offers you several benefits and is one of the best investment options in the market.
- It safeguards you during any medical emergency by covering the costs of treatment in case of unfortunate events.
Being covered by health insurance offers several other benefits, including tax advantages, cashless hospitalization, coverage for domiciliary treatment expenses, and more.
Let's explore ways to Save Income Tax with Health Insurance.
Section 80D grants income tax exemption based on premiums paid for health insurance policies covering your family (spouse and children) and parents.
Save tax by paying Health Insurance
As a policyholder, you can claim a deduction of up to Rs. 25,000 annually for health insurance premiums paid. The policy includes coverage for you, your spouse, and your dependent children. For senior citizens aged 60 years and above, the tax benefit limit on health insurance plans increases to Rs. 50,000. Additionally, there is an additional coverage of Rs. 5,000 for health check-up expenses of family members, including parents, spouse, and dependent children.
Schedule preventive Health Checkups
You can save on income tax by spending on preventive health check-ups during the policy term. The tax exemption limit is Rs. 25,000 for individuals below 60 years and Rs. 30,000 for senior citizens under Section 80D of the Income Tax Act of 1961. Additionally, you can claim coverage for preventive health check-ups up to Rs. 5,000 annuals.
Obtain a Health Insurance Policy for parents.
Under section 80D of the Income Tax Act, 1961, you can claim an additional tax-saving benefit by paying the premium for health coverage for either of your parents. You are eligible for a deduction of up to Rs. 50,000 per year for parents aged 60 years and above.
Cash payments do not qualify for Tax Benefits
To avail tax benefits, you must pay the premium of a health insurance policy through specified banking modes such as demand draft, cheque, debit or credit cards, or net banking. However, expenses incurred for preventive health check-ups paid in cash do not qualify for income tax savings.
Paying premiums for health insurance coverage exempts you from income tax liability in a given financial year. If you have a family floater health insurance plan covering yourself, your spouse, and children, premiums for each family member reduce your income tax liability. This section of the income tax act benefits the following family members:
- Policyholder
- Your Wife / Spouse
- Your Kids
- Your Parent
A HUF (Hindu Undivided Family) can claim tax benefits under this section based on the premium paid for each individual member, subject to the maximum limit of tax benefit allowed under this section.
Consider an example where your family consists of six members with varying ages.
| Family Members | Age in Years |
|---|---|
| Policyholder (You) | 34 |
| Wife/Spouse | 33 |
| Two Childrens | 10 and 6 |
| Father | 62 |
| Mother | 58 |
You and your family are covered under a family floater plan that protects you, your spouse, children, and dependent mother. You pay annual premiums of Rs. 15,000 for the family floater plan and Rs. 28,000 for the plan availed by your father. The expenses for preventive health check-ups amount to Rs. 15,000 for you and your family, and Rs. 7,000 for your father.
You have paid a total of Rs. 43,000 (Rs. 15,000 + Rs. 28,000) for health insurance premiums and Rs. 22,000 (Rs. 15,000 + Rs. 7,000) for preventive health check-ups. Therefore, you are eligible for an annual tax benefit of up to Rs. 53,000 (Rs. 43,000 + Rs. 5,000 + Rs. 5,000)./