Tax benefit on health insurance policy varies based on family size

Amount of insurance purchased should, however, depend on your requirement, and not just the tax benefit

The pandemic has raised awareness about the need to have adequate health insurance. If you are under-insured, buy it now so that you can avail of tax deduction for 2020-21 under Section 80D of the Income Tax Act. The amount of deduction you can avail can vary widely, depending on your family size and structure. 

Wide variation

Suppose that the buyer is a single, unmarried individual. He can avail a maximum deduction of Rs 25,000. 

Next, consider an individual who pays the premium for himself and his nuclear family (wife and children). For him, too, the limit is Rs 25,000, provided all the insured persons are aged below 60.

Then comes a person who pays the premium for himself, his nuclear family, and his non-senior citizen parents. He can avail of Rs 25,000 for his own nuclear family and another Rs 25,000 for his parents — a total of Rs 50,000.

Next, turn to a person who pays the premium for his own family (all non-senior citizens) and parents who are senior citizens. Senior citizens are entitled to a higher deduction.

Naval Goel, chief executive officer (CEO) and founder, PolicyX.com says, “The individual can avail a deduction of Rs 25,000 for self, spouse, and dependent children and a deduction of Rs 50,000 for parents aged 60 years or above. His total deduction can go up to Rs 75,000.”

Finally, there is the case of a person who is himself a senior citizen and whose parents are also senior citizens. In this case, the maximum deduction he can avail is Rs 1 lakh.

Archit Gupta, chief executive officer, ClearTax, says, “A Hindu Undivided Family (HUF) can claim a deduction under Section 80D for a health policy taken for any of the members. This deduction will be Rs 25,000 if the insured member is less than 60 years, and Rs 50,000 if he is 60 years or more.”

Deduction on expenditure

The 2018 Budget amended Section 80D to include medical expenditure incurred for senior citizen individuals, their spouse or parents, all aged above 60 years. Pankaj Mathpal, managing director and CEO, Optima Money Manager, says, “Medical expenditure incurred on senior citizens is covered under Section 80D, provided they do not have health insurance.” Gupta adds, “Deduction for this expenditure is allowed subject to a limit of Rs 50,000 per annum for self and spouse aged above 60 years and separate Rs 50,000 for senior citizen parents."

Small benefit on check-ups

Payments made for preventive health check-ups for self, spouse, children or dependent parents, or members of HUF, entitle you to a tax deduction of up to Rs 5,000. This deduction is allowed within the overall limit of Rs 25,000 or Rs 50,000. Payments can be made in cash. Gopal Bohra, partner, NA Shah Associates, says, “Keep documentary evidence such as doctor’s prescription, receipt of medical tests, etc, in case the tax department asks for proof.”

Deduction on single-premium policy

Budget 2018 introduced a new provision for claiming a deduction on single-premium health policies. Gupta says, “If a lump-sum premium payment has been made for a policy valid for more than one year, a deduction can be claimed equal to the appropriate fraction of the amount, under Section 80D.” The appropriate fraction can be arrived at by dividing the lump-sum premium by the number of years of policy tenor, subject to the limit of Rs 25,000 or Rs 50,000, as applicable.