Decoding Section 80D: The healthcare-related tax deductions available to you

• The highest amount that can be deducted under section 80D is ₹25,000 each year. In case the policyholder is a senior citizen, the highest deduction allowed is ₹50,000 per year.
• An additional deduction of a maximum of ₹5,000 is permitted for the payment made towards preventive health check-ups for oneself, spouse, children who depend on them, and parents.
• To claim the deduction, the premium must be paid through a banking channel such as cheque, credit card or net banking.
  

When we think of financial planning, we think of investments, tax planning, retirement planning, and so on. But financial planning should start with health insurance.

The reason is simple. With rising costs of medical treatment, any incidence of hospitalisation can set you back by a few lakh rupees or more. If you have to pay those bills from your pocket, then your investments and lifestyle can take a hit. Hence medical insurance is critical.

The government of India has provided several income tax deductions to encourage people to buy health insurance and to take care of their health. If you opt for the old tax regime, you can use these deductions to reduce your tax outgo in 2023-24.

Section 80D of the Income Tax Act, 1961, provides tax deductions to individuals for the amount paid towards health insurance premiums, and medical expenses. The following are the different deductions available under section 80D for Indian taxpayers:

Health insurance premium

“An individual can claim a deduction for the amount paid towards health insurance premiums for themselves, their spouse, dependent children, and parents. The maximum deduction allowed is ₹25,000 per annum. If the insured person is a senior citizen (above 60 years of age), the maximum deduction allowed is ₹50,000 per annum,” says Venkatesh Naidu, chief executive officer, Bajaj Capital Insurance Broking.

An additional deduction for parents' insurance premium paid is available to the extent of ₹25,000 if they are less than 60 years of age, or ₹50,000 if your parents are aged above 60. In case both you and your parents are over 60 years old, a maximum deduction of ₹1 lakh can be claimed.

Preventive health check-ups

An additional deduction of a maximum of ₹5,000 is permitted for the payment made towards preventive health check-ups for oneself, spouse, children who depend on them, and parents.

Medical expenses for senior citizens

An additional deduction of up to ₹50,000 annually is permitted for medical expenditures paid for senior citizens who do not have coverage under any health insurance plan.

Deduction in case of single-premium health insurance policy

“Budget 2018 has introduced a new provision for claiming a deduction regarding single-premium health insurance policies. Under the new provision, where a taxpayer has made a lump sum premium payment in a single year for a policy valid for more than one year, she can claim a deduction equal to the appropriate fraction of the amount under section 80D,” says says Archit Gupta, founder and CEO, Clear, a fintech company.

The appropriate fraction is arrived at by dividing the lump sum premium paid by the number of years of the policy. However, this would again be subject to the limits of ₹25,000 of ₹50,000, as the case may be.

Keep in mind

There are a few things one needs to keep in mind when claiming deduction under section 80D.

Maximum deduction

Check the maximum deduction allowed under Section 80D, based on your circumstances.

Let us take an example. Preeti is aged 40 years, and her father is aged 70 years. Preeti has taken medical cover for herself and her father, for which she pays insurance premiums of ₹28,000 and ₹40,000, respectively. She can claim ₹25,000 for the premium paid under her own policy. For the premium paid for her father’s policy, Preeti can claim up to ₹50,000. So in all, she can claim a deduction of ₹65,000.

Also, to claim the deduction, the premium must be paid through a banking channel such as cheque, credit card or net banking. Cash payments are not eligible for deductions under this section.

Finally, it is important to maintain proper documentation of the insurance premiums paid for yourself, spouse, dependent children and parents. This documentation includes receipts or payment acknowledgments, and copies of insurance policies. In order to claim deductions under Section 80D, you need to provide proof of payment towards health insurance premiums and preventive health check-up expenses while filing your income tax returns.



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