Health insurance has gained popularity as a tax saving option very recently, with the additional tax sops offered by the government in successive Budgets, which have boosted awareness of and proclivity to opt for health insurance.
Even if there were no tax benefits involved, health ins-urance is worth its weight in gold. Rising medical care costs, along with ever incre-asing inflation, leave us with no option but to buy health insurance — one of the wisest financial decisions that you can take.
But as tax saving is one of the key reasons for people to buy health insurance products, here is a quick look at few points which need to be kept in mind while purchasing the health insurance as part of your yearend tax planning measures.
Tax deduction for insurance premium You can avail a maximum tax deduction of up to Rs 25,000 for premium paid for health insurance for self and family (spouse and children), if you are less than 60 years. If you are a senior citizen, the maximum possible tax deduction is Rs 30,000. This deduction is permissible under Section 80 (D) of the Income -Tax Act.
Saving on premium paid for parents Additional tax deduction of Rs 5,000 can be availed if your have included your parents in your health insurance and paying premium for it. This means if you are paying premium for your parents, a deduction of Rs 30,000 can be availed if they are above 60 years of age.
Avail tax deduction on life insurance riders Not many people know that the tax deductions on offer under Section 80(D) are not limited to insurance bought through health insurance companies. If you have taken any life insurance rider like critical illness or any other medical insurance rider, you can still opt for tax deduction under Section 80D. So any premium you pay to opt for a health insurance policy offered by life insurance companies or against any riders is as much eligible for deductions as policy from a general insurance company.
Deductions on health check benefits Most health insurance policies require you to undergo a health check up. Thank-fully, you can claim the ex-penses made for such health checkups as tax deductions. The maximum deduction allowed for health checkup is limited to Rs 5,000. This limit is not for one individual, but available as an aggregate expense. So for instance, if you and one of your parents both undergo health check-ups, you will be able to get a tax deduction of Rs 5,000 collectively.
Cash payments can nullify deductions If you have paid your health insurance premium by cash, you may not be able to get any tax deductions. Tax benefits are only available, if you are paying either through electronic transfer, cheque, draft, credit card etc. So avoid paying your health insurance premium by cash to get access to all possible tax deductions.
No deduction on service tax component The tax benefit offered on your health insurance premium is on the premium paid, excluding the service tax component.
Health insurance companies charge a service tax on your health insurance premium. The current service tax rate is 14.5 per cent (increased to 15 per cent for the next financial year) which you need to pay over and above your health insurance premium.
Unfortunately, the service tax component you pay for your health or medical insurance is not permissible for any tax deductions.
The writer is the CEO of BankBazaar.com
