While securing your health and that of your family members should be the primary reason to purchase a health plan, a lot of people focus more on the tax-saving benefit. So, how do health plans help you save taxes? Read this post to find out.
With the rising cost of healthcare in the country, health policy is now a must to protect your health and finances. You should not only purchase a health plan for yourself but even for your family members, including spouse, children, and parents. Apart from securing your health and finances, health policies are also popular for their tax-saving benefit.
A large number of people in India, unfortunately, purchase a health plan primarily to save taxes. While the policies do help you reduce your income tax liability, the buying decision should always be based on your insurance needs.
So, how does one save taxes with health policy? Take a look-
Deductions Under Section 80D
Under Section 80D of the IT Act, premiums of up to Rs. 25,000 paid for health policy in a financial year could be deducted from your taxable income. This rule applies to individual health policies and even family floater plans that cover that you, your spouse, and dependent children. In case if you are above 60 years, the deduction limit is extended to up to Rs. 50,000.
In case if you are below 60 years and have a dependent parent above 60 years, you can purchase two different policies-one for yourself and another for your parent, and claim a deduction of up to Rs. 75,000. If you as well as your parent are above 60 years, you can claim deductions of up to Rs. 1 lakh on the premiums paid towards health policies in a year.
Tax Deduction on Preventive Health Check-ups Under Section 80D
Apart from the deductions that you can claim on the health policy premiums, there are deductions available for preventive health check-ups too. Under Section 80D, expenses of up to Rs. 5,000 on preventive health check-ups are also eligible for tax deductions.
But note that this deduction on health check-ups is within the total ceiling of health policy premium deductions. Let us understand this with an example.
Let us consider that you have purchased an individual health plan for yourself. The annual premium of the policy is Rs. 20,000. You also spent Rs. 5,000 on preventive health check-ups. So, your total deduction under Section 80D will be Rs. 25,000.
But if the annual premium of your policy is Rs. 23,000, and you spend Rs. 5,000 on preventive health check-ups, the deduction amount will still be Rs. 25,000 and not Rs. 28,000 as the premium deduction limit on policies for individuals below 60 years is Rs. 25,000.
Tax Benefit is Not Applicable on Cash Payments
You should also remember that if you are purchasing a health policy and want to claim deductions under Section 80D, it is mandatory not to pay the policy premiums in cash. You cannot claim tax deductions on the premium amount that you pay in cash. You can pay through cheque, debit card, credit card, or any online payment method.
Only preventive health check-up fee can be paid in cash. Also, do keep the payment receipt as you will have to submit the same to your employer if you are a salaried employee to avoid extra TDS deduction. Even if you are not a salaried employee, you will still need the receipt at the time of filing tax returns.
Saving Taxes with Health Plans
A health insurance policy is such an essential purchase for every individual that the government has made their premiums eligible for a tax deduction. Now that you know how much deductions that you can claim on health policy premiums, make the best use of the opportunity to reduce your income tax liability.
But do ensure that you select a health plan based on your insurance needs and not solely due to the tax benefits.