The Income Tax Act (ITA), 1961 puts forth several provisions under its aegis through which taxpayers can claim exemptions and reduce their overall tax liability in any given year. Section 80D of the ITA encompasses such tax deduction benefits through which eligible individuals can enjoy a reduction in their total taxable income through applicable incentives.
What is Included Under Section 80D?
Under Section 80D of the Income Tax Act, individuals can claim deductions for the premium paid towards their medical insurance policies from their total income each year. This advantage is available not only on the premium paid for the taxpayer’s own medical insurance but also for those covering his/her spouse, children, elderly parents, etc.
Thus, with a medical insurance policy in place, individuals can not only safeguard themselves against financial liabilities arising out of medical emergencies but also save substantially by claiming tax deductions.
Deductions Under Section 80D
Both individuals and members of a Hindu Undivided Family are eligible to claim Section 80D deductions on their total income generated during a year.
Following is a breakdown of the quantum of deduction available –
For individual taxpayers
Individuals can claim a deduction of up to Rs.1 lakh on the premium paid towards health insurance policies as per the provisions put forth under this Section.
The following table illustrates the tax exemption limits for specific cases –
|Eligibility Criterion||Exemption Limit||Heath Checkup included||Total Deduction|
|Premium paid towards health insurance policy covering self and family members. Here, the family includes spouse and children below 18 years of age.||Rs.25,000||Rs. 5000||Rs. 25000|
|For premium paid towards insurance policies covering self, family and parents. Here, one’s parents should be below 60 years of age.||Rs.(25,000 + 25,000) = Rs.50,000||Rs. 5000||Rs. 55000|
|For the amount paid as premium towards an insurance plan covering self and family (where the eldest member is below 60 years of age) and parents (above 60 years).||Rs.(25,000 + 50,000) = Rs.75,000||Rs. 5000||Rs. 60000|
|For the amount that is paid as premium towards self, family (where the youngest member is above 60 years) and parents ageing 60 years or more.||Rs.(50,000 + 50,000) = Rs.1,00,000||Rs. 5000||Rs. 65000|
Note – Individuals above the age of 60 years can enjoy a tax deduction of Rs.50,000 on the premium paid towards their own health insurance policy. Further, the provisions applicable to senior citizen members can also be enjoyed by super-senior citizens or individuals above 80 years of age.
This table above can be understood better with the aid of an example given below.
Ms Roy, a salaried individual, opted to avail a medical insurance policy on her 30th birthday. She also decided to insure her father, aged 65 years and purchased an insurance policy for him as well. Ms Roy is liable to pay a premium of Rs.30,000 and Rs.40,000 towards the insurance policies purchased for herself and her father, respectively.
So, by way of Section 80D income tax deductions, Ms Roy is eligible to enjoy a total exemption of Rs.25,000 and Rs.50,000 on her insurance policy premium amount. Therefore, in this case, Ms Roy can claim a deduction of Rs. (25,000+40,000), that is Rs.65,000 on her income for the given year.
For HUF taxpayers
HUFs can enjoy the provisions put forth under Section 80D and claim deduction for premium paid towards the health insurance policy of any of their members. Similar to taxation on individuals, the exemption limit for members below 60 years of age will be Rs.25,000 while that for those above 60 years will be Rs.50,000.
Deductions for Preventive Health Check-Up
Under Section 80D of Income Tax Act, eligible individuals can claim a deduction of up to Rs.5,000 for any payment made towards preventive health check-ups in a year. This rebate of Rs.5000 is included under the overall exemption limit of Rs.25,000/Rs.50,000 for those below and above 60 years of age respectively.
This rebate can be claimed by an individual for self, spouse, children or parents.
The calculation of the overall tax exemption, alongside this rebate, can be understood better with the following example –
Arun is a 35-year-old salaried taxpayer who has purchased a health insurance policy with a premium liability of Rs.22,000. At the beginning of the year, Arun went for a preventive health check-up, which cost him Rs.4,000. Thus, his total expenses doled out towards the health insurance premium, and check-up amounted to Rs.(22,000 + 4,000), that is Rs.26,000.
Under the provisions of Section 80D, Arun can claim exemption of Rs.25,000 in total for the premium paid and expense incurred for the health check-up. Here, Rs.1,000 will be added to his taxable income.
Deduction for Single-Premium Health Insurance Policies
There was a new provision introduced under this Section in the Annual Budget 2018, pertaining to single premium health insurance policies.
Single premium health insurance policies are those wherein individuals make a single lumpsum payment towards a policy that remains valid for multiple years.
In this regard, the payment made towards such a policy is divided by the total number of years the policy is valid for. And, the deductions under Section 80D can be claimed for the resulting amount for any given year.
Nonetheless, the exemption limits of Rs.25,000 and Rs.50,000 remain applicable in this case as well.
Amendments Made During Budget 2020
Budget 2020 introduced a new taxation regime, wherein individuals could enjoy reduced tax rates if they choose to forego about 70 tax deductions applicable under the Income Tax Act.
The exemptions under Section 80D was included in the list of these 70 exemptions that taxpayers enjoyed under the previous regime.
Therefore, taxpayers being taxed as per the slabs introduced in Budget 2020 are not eligible to claim deductions under Section 80D.
Important Points to Remember
Before investing in a health insurance policy, one must take note of these following crucial points –
- Individuals need to make the payment towards their health insurance policies in any mode other than cash. However, payment towards preventive health check-up can be made through cash.
- The insurance policy to be purchased must adhere to the norms set by IRDA and the central government.
- Premium payments made towards anyone other than one’s spouse, parents and dependent children are not eligible for deductions.
- Section 80D does not include Group Health Policy premium payments made by an employer for his/her employees.
- The deduction on the premium is applicable over the total amount minus Service Tax and Cess.
With these few factors in consideration, individuals can proceed to purchase a health insurance policy and enjoy the benefits under Section 80D. This way, they can easily save a substantial portion on their overall tax liabilities for any given financial year.
Section 80D – Frequently Asked Questions
Ques. Who is eligible to avail tax exemptions under Section 80D?
Ans. An individual is eligible to avail tax benefits under Section 80D, if he/she is paying premium towards the health insurance policy of self, their spouse and, children and parents. Moreover, if they are spending on the medical treatment/check-up of their elderly parents, aged above 80, they are eligible to avail the tax exemption. However, in such cases, one must ensure that the parents do not have an active health insurance policy in their name.
Ques. How much tax exemption can be availed under section 80D?
Answer: You can claim a tax exemption of up to Rs 25,000 for you and your family members. However, if the taxpayer is a senior citizen, he/she can avail Rs. 30,000. An extra exemption of up to Rs 25,000 can be claimed for your parents as well. However, if your parents come under the senior citizen category, you can claim tax exemptions for up to Rs 30,000 also.
Ques. Can tax exemptions be availed by HUFs also?
Ans. Yes, HUFs or Hindu United Families are eligible to claim tax exemption for all or any members, under section 80D of the Income Tax Act. However, there is a cap to this exemption which is Rs 30,000.
Ques. Can I avail tax exemptions if I make cash payments for my health insurance policy?
Ans. No, if the premium payments are made in cash, you’re not allowed to avail tax exemptions on the premium payments. You should make sure that your health insurance premium payments are made via cheques or electronically to claim tax deduction under section 80D.