Various situations in which tax benefits on health insurance can be lost

It is important to plan one’s finances properly. By proper tax planning, one not only reduces the tax liability but also end up saving towards the various goals one has set at different life stages.

Health insurance policies, popularly called as Mediclaim policies can help you save tax as per Section 80D of the Income Tax Act. It is important to note that though you have bought Health Insurance Plan and eligible for Tax deduction under section 80D of Income Tax Act, 1961, there are few instances which could make you ineligible for income tax deduction.

Instances that are not-eligible for tax benefits

Paying premium for relations other than spouse, children and parents

There are several Health Insurance Plans in the market which covers various relationships other than Spouse, Children and Parents.

Premium paid towards health insurance for relationships mentioned other than above are not eligible for the tax deduction under section 80D of Income Tax Act, 1961.

As an individual taxpayer you can claim tax deduction for health insurance premium paid for self, spouse, dependent children and parents only under section 80D.

Not submitting proof of premium payment or certificate to the employer

At the start of financial year employee has to declare the investment he/she has made towards the premium payment of Health Insurance.

On, failure of declaration of such investment he/she will be ineligible for deduction of tax under section 80D of Income tax Act, 1961.

Paying premium for financially independent children

If you pay health insurance premium for son/daughter who is not financially dependent on you i.e., working and earning for himself/herself, then in such a situation you cannot claim the premium paid for deduction under section 80D.

Premium payment in Cash

One should be careful while paying the premium for their health insurance policy as you may lose on your premium deduction if it is paid in cash. You are eligible for deduction of insurance premium paid only if it is paid through any mode other than cash.

Presently cash payment for preventive health checkups is eligible for Tax benefits under the section 80 D.

Missing renewing the health Policy in time

Your health insurance policy should be active to get the benefit of Tax exemption towards the payment made for premium of the policy. If at all you miss to renew the policy in time, you can avail the grace period provided by the insurance companies to renew the expired policy.

Grace period provided by the insurers is usually 30 days which allows continuity benefits however; claims during this break in period are not entertained by the Insurance companies.

Premium payment for long term policies

Now-a-days, most of the Stand-alone health insurance companies and General insurance companies offer policies on long term basis with options of 2 & 3 years. Discounts are also offered on purchase of policy on long term basis.

Customers should make themselves aware about the fact that, they can only claim tax deductions for the year during which the premium is paid. Tax benefit cannot be taken again in second and third year.

Important points to remember:

  • As per Income Tax Act, tax exemption under section 80D is applicable only for Mediclaim Policies and Critical illness policies. Section 80D of Income tax specifically provides deduction in taxable income to the extent of premiums paid on purchase of health insurance or medical insurance. Under employee benefit schemes provided by the employers, premium for group Health Insurance paid by the employer is not eligible for deduction under Section 80D.
  • Unlike Life and health insurance policies, Section 80 D of the Income Tax Act 1961 does not provide tax benefit for the premium paid for Personal Accident Policies that insure the individual customers against any Physical impairment, dismemberment or demise. These policies exist only to ensure that the policyholders are able to perform their duties without the additional worry of loss and financial instability due to death, dismemberment, injury, etc.
  • You can ensure the safety and security of your siblings by buying Health Insurance Policy and pay premium for them. This thoughtful financial gift for your siblings will add to their financial security & financial freedom on happening of any eventuality. However you won’t be eligible for a tax benefit under Section 80D for paying premium for your sibling’s health insurance policies.
  • Most of the singles start thinking about buying health insurance policy once they start with their jobs with an intend of tax benefit. While tax benefits are essential, it should not be the primary factor for buying health cover in early stage of the life. The plans must cover risks like hospitalisation for treatment for communicable & common diseases and ailments even if you think you are young & healthy.
  • It is true that senior citizens have the option of claiming general medical expenses for tax deduction but health insurance is not only about tax deduction and high medical bills. With age, one is more likely to require specific medical care. One also becomes prone to serious illnesses or ailments, for which treatment could be expensive. This can eat into retirement savings of senior citizens. Health insurance policy with appropriate Sum Insured helps to provide the financial aid to the elderly when they need them the most. Senior Citizen specific health policies also provides for routine check-ups helping them to tracking their health conditions.

Important facts to know about the TAX BENEFITS to the Health insurance policy holders:

  • On the premium paid for self, spouse, children (family) and parents, the maximum deduction that can be availed is Rs 25,000 a year respectively, provided no one has attained the age of 60 yrs. Total deduction u/s 80 D – Rs. 50,000.
  • If the Assessee and his family are less than 60 years & if parents are above 60 years of age then, the deduction that can be availed is Rs 25,000 for parents. Total deduction u/s 80 D – Rs. 75,000.
  • If Assessee and parents have attained the age of 60 years and above, the maximum deduction that can be availed is Rs 50,000 a year for family and parents respectively. Total deduction u/s 80 D – Rs. 100,000.
  • For senior citizens (above 60 years), during a financial year (FY) the deduction is restricted to Rs.30,000 (including Rs.5,000 towards preventive health check–up).
  • Insurance companies offered two different types of insurance policies, “Indemnity” & “Benefit policies”. Both types of policies qualify for tax benefit under section 80 D.
  • The premium paid towards Add-ons/rider like Critical illnesses in Life insurance policies also qualify for tax benefit under section 80 D.



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