Most individuals think tax planning ends with Section 80C. But in reality, there’s more to tax planning than investment in tax saving instruments.
Our Income Tax Act, 1961 also considers the humane side of our life and allows deduction for such expenditures. One such deduction is Section 80D under chapter VIA of the Income-Tax Act, 1961.
When you pay the premiums for a medical insurance policy – commonly referred to as mediclaim (also known has a health insurance policy) to cover self, spouse, dependent children, and parents against any unexpected medical expenses, it qualifies for a deduction under Section 80D.
Who can claim deduction under Section 80D?
In addition to individual assesses, a Hindu Undivided Family (HUF) too can claim a deduction under this Section provided the premium is paid for the benefit of any member of the HUF.
How much deduction can be claimed under Section 80D?
The deduction is available only on ‘actual payment basis’ for mediclaim insurance premiums, but subject to a maximum permissible limit as under:
- For Individuals
Currently the maximum deduction (from Gross Total Income) which individuals are entitled is as under:
- Upto Rs 25,000 in case of a non-senior citizen (less than 60 years of age) paying for self, spouse, and dependent children.
- Upto Rs 30,000 in case of a senior citizen (60 years and above) paying for self, spouse, and dependent children.
Further, for mediclaim insurance premiums paid for and on behalf of parents (father, mother or both), an additional deduction permitted is as under:
- Upto Rs 25,000 for non-senior citizens parents (less than 60 years of age) ––irrespective whether dependent or not
- Upto Rs 30,000 for senior-citizen parents (60 years and above)–– irrespective whether dependent or not
For very senior citizens (more than 80 year old), who may not have a health insurance policy, the deduction upto Rs 30,000 per annum can be claimed towards medical check-ups and treatments. So, if your parents are super-senior citizens, don’t forget to claim this.
Thus, the maximum deduction that can be claimed as deduction under Section 80D by individuals is Rs 60,000.
- For HUFs
To claim a deduction, the mediclaim insurance policy can be in the name of any member of the HUF. The deduction under Section 80D for an HUF is otherwise upto Rs 25,000. However, if the member covered by the mediclaim insurance policy is a senior citizen, the deduction under Section 80D gets increased to Rs 30,000.
With effect from Assessment Year 2017-18, expenditure towards preventive health check-ups can be claimed as deduction upto Rs 5,000 ––irrespective of senior or non-senior citizen, and whether in India or abroad (provided your health insurance policy permits and insurer is registered with the Insurance Regulatory and Development Authority). This means, if you are paying a premium of less than Rs 10,000; you may avail this benefit and save tax. But note that this deduction is very much a part of this of maximum permissible deduction under Section 80D.
How should you pay medical insurance premium to claim a deduction under Section 80D?
Section 80D stipulates that medical insurance premium be paid in any mode other than by cash ––so, preferably vide cheque, net banking, debit card, credit card, or any other acceptable mode. If you pay medical insurance premium in cash, you are not entitled to claim a deduction under Section 80D.
However, for preventive health check-ups the payment can be done in any mode, including cash.
Here are a few exclusions when claiming deduction under Section 80D:
- Group health insurance policies are not eligible for tax deduction under Section 80D. However, when you pay extra premium to enhance you group cover or buy a separate/additional health insurance policy, a deduction thereto can be claimed.
- If children aren’t dependent, parents can’t claim deduction for their mediclaim health insurance premium and preventive health check-ups.
- Mediclaim insurance premium paid on behalf of in-laws–– irrespective whether dependent or not––is not entitled for a deduction under Section 80D.
- The tax component in the premium amount cannot be claimed; only the premium amount is allowed as deduction under Section 80D. The premiums should be paid in financial year relevant to the Assessment Year.
Care to taken when buying mediclaim insurance policy
With rising cost of healthcare, mediclaim insurance is a must; it can’t be ignored. At the same time before zeroing down on one, doing thorough research is essential.
Here are 8 features you must compare before buying a mediclaim insurance policy:
- Sub-limits on Room Rent
Room Rent is one of the major expenses if you or any member of your family gets hospitalized. Some general insurance companies cap the maximum amount they pay under their mediclaim policy. Generally such limit is to the extent of 1% of sum assured and in case of ICU (Intensive Care Unit) the maximum limit is 2% of sum assured. But there are general insurance companies who do not have any maximum limit on room rent. Ideally, look for such a mediclaim policy even if it means paying a higher premium.
- Pre-Existing Diseases
Pre-Existing Diseases are the ones that exist or you are suffering from before you opt for a mediclaim policy, and therefore insurance companies do not cover them from day 1 of your policy. Insurance companies have a waiting period ranging between 2-4 years for which they will not be liable for any claim arising on account of your pre-existing disease. Therefore, ideally hunt for a mediclaim policy which will cover your existing disease and have the least number of years of waiting period.
- Co-payment
Co-payment is a clause in health insurance plans that requires cost-sharing by the policyholder. Cost sharing is the specified percentage of the admissible claim amount. Let's take an example to understand it better. Suppose you have a mediclaim policy which has a 20% co-payment clause, and you are hospitalized. The final hospital bill is generated and the claim amount is Rs 1 lakh. Now, going by the co-payment clause, you, the insured, will be liable to bear Rs 20,000 (Rs 1,00,000 * 20%), while the rest i.e. Rs 80,000 would be settled by the insurer.
Hence, ideally ensure that mediclaim policy you opting for has the least co-payment clause or does not have any co-payment clause at any stage of your life.
- Network Hospital
Network hospitals are those which have a direct tie up with your health insurance company; so in case of a claim you can avail the cashless facility. Cashless facility saves you from the headache of settling the bill amount with the hospital, as insurance companies directly settles your bill on your behalf. Hence in such a case, you do not have to file for the reimbursement of claim due to insurance company already haven settled the claim.
You should ideally look for mediclaim policies which have the maximum number of network hospitals, and more importantly, maximum number of good network hospitals in your city.
- Pre & Post Hospitalization Expenses
Pre-Hospitalization expenses are those expenses which are incurred before you are hospitalized while Post-Hospitalization expenses are those which are incurred after you are hospitalized. Pre-Hospitalization expenses are generally covered for minimum of 30 days while Post-Hospitalization expenses are generally covered for 60 days.
But there are insurance companies which cover pre and post hospitalization expenses for more number of days as well. So, look out for mediclaim policy which cover you for maximum number of days of pre and post hospitalization period.
- No Claim Bonus
A health insurance claim arises in the year of hospitalization. In the years where you are in pink of medical health (by God's grace) and there aren’t hospitalizations and claims, the insurer offers you a no claim bonus. This has an effect of increasing your sum assured by 10% to 50%. No claim bonus increases on progressive basis by value of 5% for a claim free year and it can be accumulated for a maximum period of 10 years (but expires if the policy is not renewed on time).
- Exclusions
Once you buy a mediclaim, you might feel relaxed thinking you have insured yourself and your family. But if you don't go through the policy wording, specifically the exclusion section, you might be in for surprises at the time of claim. So, before finalising on any mediclaim policy please go through the exclusions and select the one which has least number of exclusions and which are clearly defined.
- Premium
The premium you would pay is a vital aspect to consider while buying a health insurance plan. But it shouldn't be paramount in your selection process. Just think, you buy a mediclaim policy with a very low premium without even taking into consideration the features of the policy. At the time of claim you might face nasty surprises as the insurer may not liable to reimburse you on account of devil in the fine print.
So, you should be well aware of all the features, read the fine print carefully before signing on the dotted line; or you may find yourself in a hot soup with a huge hospital bill to be paid, amid times where you just recovering with your health conditions or God forbid, yet ailing.
End note…
Insurance is must in overall financial planning. As one grows old the number of physical ailments increase. If you do not have optimal health insurance coverage, it could drain your finances and derail the envisioned financial goals.
Hence, sensibly buy a mediclaim policy today and enjoy tax benefits on premium paid under Section 80D. Plus, you can maintain a separate contingency fund worth Rs 5–10 lakh for medical emergencies. These decisions will even facilitate you to manage your cash better during your retirement period and live peacefully.
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