A good health insurance policy is perhaps the most important thing that you should buy to protect you and your family from the burden of high medical expenses. Simply put, a health insurance policy is a contract that a customer signs with a health insurance provider wherein the insured person has to pay a monthly or an annual premium to the insurance company. If, within the duration of the active health insurance policy, the individual policyholder or any of the people covered within the policy require medical treatment, then the insurance company provides the financial cover for the same.
Now, this may be the primary reason to buy a health insurance policy, that is to put a plan in place that covers expenses in case of medical emergencies. But an added benefit of having a health insurance policy is that it can act as a tax saving tool. Read on to find out how a health insurance policy can be used to save taxes.
Tax benefits of health insurance
Before we get into the tax benefits of health insurance, it is important to know how exactly the tax deduction process works. Individuals that fall in the tax paying bracket have to pay income tax according to the tax slab that they’re categorised in. This income tax is calculated based on the total annual taxable income of the individual. So, it is obvious that the more the annual income calculated, the more will be the income tax to be paid by the individual. So, when something like certain investments, life insurance and health insurance premiums are tax deductible, it means that the premium paid for those services can be deducted from the total taxable income of the individual. And thus, the final amount on which income tax will be calculated is reduced, resulting in lesser income tax paid.
According to Section 80D of the Income Tax Act, any premium paid for health insurance for yourself, your spouse and your children is eligible for tax deduction of upto Rs. 25,000 in a given year, provided that all of them are below 60 years of age. For persons above 60 years of age, the eligible amount for tax deduction can go upto Rs.50,000. In addition to this, a separate tax deduction can also be claimed for the health insurance of parents, which is again Rs. 25,000 for parents below 60 years of age and Rs. 50,000 for parents above 60 years of age.
To simplify this further, let us take a look at the table below to understand how much amount can be claimed for tax deduction from health insurance premiums for different scenarios.
If both individual and parents are below 60 years of age
Tax deduction for individual (can include spouse and children): Rs. 25,000/-
Tax deduction for parents: Rs. 25,000/-
Total tax deduction applicable: Rs. 50,000/-
If an individual is below 60 years of age and parents are above 60 years of age.
Tax deduction for individual (can include spouse and children): Rs. 25,000/-
Tax deduction for parents: Rs. 50,000/-
Total tax deduction applicable: Rs. 75,000/-
Both individual and parents above 60 years of age
Tax deduction for individual (can include spouse and children) : Rs. 50,000/–
Tax deduction for parents: Rs. 50,000/-
Total tax deduction applicable: Rs. 100,000/-
Thus, the best health insurance policy is a policy that takes care of medical expenses of your entire family, while at the same time being an excellent tax saving tool. In certain scenarios where both you and your parents are senior citizens, a maximum of Rs. 100,000 can be claimed for tax deduction. In other relatively common scenarios, where you are below 60 years and your parents are above 60 years of age, a maximum deduction of Rs. 75,000 can be claimed, which is also quite significant.