This article has been written by Gauri Saxena, an LLM student from Dr. DY Patil College of Law. This article provides a detailed analysis of Section 80D of the Income Tax Act, 1961.

It has been published by Rachit Garg.

Introduction

Taxpayers are constantly searching for credible measures to lower their tax liability. Section 80D of the Income Tax Act of 1961 (ITA, hereinafter) is one of the sections that can come to one’s aid and greatly reduce the tax burden. The government provides benefits to those who file taxes because every tax paid allows them to work better and provide resources to citizens. As a result, to take advantage of the benefits offered by the Indian government for making the right investment choice and thus saving significantly on taxable income, this section discusses tax breaks for medical insurance policies.   

Section 80D of the ITA allows you to deduct medical insurance premiums paid for you and your family members. You can claim a deduction for health insurance premiums for yourself, your parents, your children, and your spouse. Besides, the said Section enables members of Hindu Undivided Families (HUFs) to claim deductions. It offers waivers in addition to the exemptions provided in the form of Section 80C of the ITA. 

Before moving further, one must understand the basic difference between Sections 80C and 80D. The former section is more widely used because it covers a broader range of products and allows for a maximum tax deduction of ₹1.5 lakhs per fiscal year. Section 80C also covers a wide range of payments, including investments in various tax-saving schemes; tax-saving FDs; ULIPs; ELSS; Sukanya Samriddhi Yojana; life insurance premiums, and mutual funds. On the other hand, Section 80D primarily addresses health insurance payments.

Deductions under Section 80D of Income Tax Act, 1961

Here you will know how much money you can save under this particular section, but it does depend on various situations. Only medical insurance policies qualify for 80D deductions. 

There are some exemptions:

  1. You, your spouse, and dependant children

You can claim a maximum tax deduction of ₹25,000 per year if you pay health care premiums for yourself, your spouse, and your kids. 

  1. Your parents
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You can claim a maximum deduction of ₹25,000 per year if you pay health insurance premiums for your parents. This amount increases to ₹50,000 per year if your parents are senior citizens. 

Also note that one can claim a supplemental 80D income tax deduction of $5,000 for health-related expenses. This includes all costs for a family check-up.

There is no particular payment method that has to be followed for the payment of an insurance policy; all modes are accepted except for cash payment. Perks are available for the payment of senior citizens (age: 60 and above) treatment, and also for their preventive health checkups. 

Given below are the deductions available under Section 80D in a more comprehensive way, 

CATEGORYPREMIUM PAIDDEDUCTION
Self, spouse, and childrenParents
Individual and parents under 60 years old₹25,000₹25,000₹50,000
Individual and family under 60 years old, but parents over 60 years old₹25,000₹50,000₹75,000
Individual, family, and parents over 60 years old₹50,000₹50,000₹1 lakh
Non-Resident Indian (NRI)₹25,000₹25,000₹25,000
Hindu Undivided Family
(HUF)
₹25,000₹25,000₹50,000

For example, you, at the age of 61, buy a health insurance premium for yourself, your spouse, and dependent children worth ₹40,000. You also buy a health insurance premium worth ₹45,000 for your parents. 

According to Section 80D, you are qualified for the following tax breaks:

  • Tax break of ₹40,000 out of the total 40,000 that you paid for yourself, your spouse, and dependent children. 
  • Tax break of ₹45,000 out of the total 45,000 that you paid for your parents. 
  • Therefore, the total tax break claimed can be ₹85,000 (40,000+45,000) on the overall premium payment of ₹85,000. 

NOTE: Before applying for an exemption, one should keep in mind that the exemption under Section 80D is an excellent way to decrease your tax liability. If you have a spouse who works, he or she can also claim the deduction. Your spouse can also purchase health insurance for his or her parents and claim a tax deduction for it. Both of you should purchase distinctive health insurance policies for family members and yourself.  

Who can claim tax benefits under Section 80D of Income Tax Act, 1961

A taxpayer may deduct expenses under Section 80D. Deductions are allowed for health insurance premiums paid for the respective family members:

  • Self,
  • Spouse,
  • Dependent parents, or 
  • Dependent children.

This section also allows members of Hindu Undivided Families (HUF) to claim deductions. Premium payments made by any member of a HUF can be used for tax purposes, pertaining to the Act’s maximum limit. 

You or anyone you know who is an NRI (Non-Resident Indian) is subject to a tax break on taxable income earned in India, in addition to providing essential medical care for the family. 

Why do we need a tax deduction and is it legitimate?

Before we can understand why there is a need for a tax deduction, we must understand what is really meant by a tax deduction. A tax deduction is nothing but an expense that has been subtracted or deducted from your total income to decrease the amount of tax you pay. In short, there is a deduction in your income that has to be taxed. Sadly, not many people know about it, but you are not one of them.

To encourage taxpayers to save and invest, the income tax department has provided numerous deductions from taxable income under Chapter VI A of the ITA, making it legitimate for taxpayers to save some money.

Ideally, the government should not be interfering in the “health department” as it is a state subject, but given the fact that states are not actively doing anything to cover or provide medical insurance to their people, the Union government has to come up with policies now and then to encourage its taxpayers to get themselves and their families covered under Health Insurance Schemes.

Section 80D was put into effect to encourage individuals and Hindu Undivided Family (HUF) health planning. 

Payments under Section 80D of Income Tax Act, 1961

Payments eligible as per the Section

  1. Cost of the health insurance premium paid for self, dependent spouse, dependent children, and parents.
  2. Contribution to the CGHS (Central Government Health Scheme)/ notified scheme,
  3. Expenditure on preventive healthcare, and 
  4. Medical costs in the case of a senior citizen who is not covered under any health insurance policy.

The amount deducted is determined by the nature of the expenditure, payment method, age, and relationship of the individual for whom the expenditure is made. 

Payments that are not eligible for deductions:

  1. You cannot receive tax benefits if you make your payments on behalf of the following:
  • Your grandparents,
  • Your siblings,
  • Working children.

This applies to every relative who is not expressly protected by your policy.

  1. There will be a disqualification for insurance tax benefits if you pay your premiums in cash. Although with cash payment, preventive health care can be obtained. 
  2. If the company you are working for makes a health insurance premium payment in a non-contributory group, you, as the employee, cannot claim the tax deduction.

If, however, you contribute an additional premium to improve the coverage of the group, you can claim a tax deduction on that amount. 

  1. You cannot claim a tax break on GST and cess levied on premium payments.

Limits under Section 80D of Income Tax Act, 1961

  1. For oneself and one’s family

₹25,000 tax break + ₹5,000 health checkup exemption = ₹30,000

  1. For oneself, one’s family, and one’s parents

₹50,000 tax break + ₹5,000 health checkup exemption = ₹55,000

  1. For oneself, one’s family, and elderly citizen parents

₹75,000 + ₹5,000 = ₹80,000

  1. For yourself (when you are a senior citizen too), family, and senior citizen parents

₹1 lakh tax break + ₹5,000 health checkup exemption = ₹1.05 lakh

Investments covered under Section 80D of Income Tax Act, 1961

Preventive health check-ups 

Section 80D of the ITA allows you to deduct the premiums you pay for health insurance. To uplift citizens to become more health-conscious, the government instituted a preventive health checkup tax benefit in 2013-14. By visiting a doctor regularly, you can detect any illness and reduce its risk factors early on. Section 80D allows a deduction of ₹5,000 for transactions for preventive health check-ups. This tax benefit is limited to a maximum of ₹25,000/50,000, depending on the circumstances. This deduction is available to individuals for themselves, their spouses, their dependent children, or their parents. Cash could also be used to meet the cost of screenings. 

Tax breaks on preventive healthcare checkups

You (or any individual) can also claim back the premium paid for your parent’s health insurance policies. The size of the deduction is calculated by the foremost policy holder’s age.

If you get annual health checks, you will be subject to the tax break. The Section 80D limit will include the expense of checkups. For each fiscal year, the cap on checkups is ₹5,000 for individuals under the age of 60 and ₹7,000 for senior citizens. 

Tax breaks on health insurance premium payments for parents 

Premiums paid for a health insurance policy for parents are eligible to claim a deduction of up to ₹25,000 per fiscal year. If your parent is over the age of 65, the maximum annual limit increases to ₹50,000. This limit will also include ₹7,000 for the cost of annual health check-ups. 

Individuals who are 85 or older and do not have an insurance plan can take advantage of a tax deduction of up to ₹50,000 per fiscal year for yearly medical checkups and hospital treatments. However, the tax breakdown does not protect their expenditures.

Health-related riders

Health-related riders like Critical Illness Coverage available with life insurance plans are also covered by Section 80D of the ITA.

Riders are entirely voluntary terms that are added to your basic insurance policy at an extra cost. In other words, it provides great coverage and risk protection. Insurance riders are cost-effective modifications to your life insurance policy. They strengthen and advance your policies to cover something more than the expense of your fatal injury.

Types of Riders

  1. Accelerated Death Benefit Rider: It is an additional rider that provides additional benefits to the policyholder or his nominee. It provides additional coverage in the occurrence of the policyholder’s death due to any particular and pre-defined condition and in addition to the base plan benefits.
  2. Accidental Death Benefit: This rider includes a provision that provides a round-sum payment of the principal amount to the nominee in the event of the demise of the policyholder as a result of an accident or adversity. 
  3. Accidental Disability Rider: It offers additional security in the event of any type of disability. The unforeseen impairment rider must be elected based on the actual need, not at random. 
  4. Critical Illness Rider: It is a separate rider that provides greater protection instead of the additional premium terms and payment options. The said rider offers extensive financial protection in the event of a critical illness. This rider offers insurance for critical illnesses as outlined and identified in the respective insurer’s policy documents. 
  5. Income Rider: This rider enables the policyholder’s nominee to receive a particular sum as a regular salary in the occurrence of the policyholder’s demise during the term of the policy. 
  6. Waiver of Premium: This is perhaps the most favored rider, and it is frequently incorporated into other policies, particularly child plans. If the policyholder dies, there would be no charged premiums, and his or her nominee would be qualified for the base plan rewards.  

Conclusion

Now you know that the tax incentives available to senior citizens u/s 80D are quite significant. As a result, you can avoid outstanding debts at that age. The country and we all suffered a lot after spending a fortune on treatments. At this point, Section 80D tax benefit facility is likely the most prevalent tax-saving tool. If you intend to file an Income Tax Return (ITR) under this section, remember to read the information above first to prevent ambiguity.

Frequently Asked Questions (FAQs)

  1. Is it possible for me to claim tax benefits if my spouse and parents are not financially dependent on me?

Yes, even if your spouse and parents do not seem to be financially dependent on you, you can claim tax benefits. 

  1. Is it possible for me to claim tax benefits if I pay the premium for my independent (working) children?

No, you cannot claim tax benefits for independent children. 

  1. Can I claim tax deductions from various health insurance policies?

Yes, you may claim tax breaks for various health insurance policies. You must ensure that you fulfill all qualifying conditions and that your premium payments for all insurance policies are up-to-date. If the claim amount exceeds the insurance coverage under the first policy, you will have the choice of claiming the difference from the second policy. Keep this in mind when submitting under various policies. 

  1. Is there any specific income range for me to fall into to avail of the tax benefits?

No, there is no such income range criteria for you to claim tax breaks. 

  1. Will I be able to claim 80D deductions under the ITA if my parents and I split the cost of my medical insurance?

Yes, you can both claim tax exemptions to the extent paid by each.   

  1. Can I claim a tax exemption for a health insurance policy purchased by me for my in-laws?

No, you can claim a tax deduction for a policy purchased for your parents, not in-laws. 

  1. How do I claim these tab benefits under Section 80D?

You will have to disclose the 80D deduction under “Chapter VI-A of the ITA” at the time of filing the Income Tax Return (ITR). 

  1. Are Cess and tax the same?

A cess is a type of tax imposed on taxes for specific purposes until the government receives sufficient funds for the purpose. It is added to the basic tax obligation paid by the general public as part of the total tax paid. 

Revenue from taxes (such as income tax) and cess is kept in the Consolidated Fund of India, but cess is used for a specific purpose after due appropriation from the Parliament of India. 

For example, the tax charged as the Swachh Bharat Mission Cess.

References


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