Health Insurance Tax Deduction FY 2019-20 / AY 2020-21 | Income Tax Benefits u/s 80D

Health Insurance (or) Mediclaim insurance is a must-have for all. Considering the rate at which medical costs are rising, it is very important to have sufficient medical insurance coverage. The medical inflation in India is increasing at a significant rate, almost 12% to 15% year on year. Therefore, it is critical to have an adequate health cover, it is even more important for senior citizens.

Absence of health insurance can wipe out your savings. Having sufficient coverage will safeguard you and your dependents from getting into financial crisis during hospitalization or critical illnesses’ treatments or accidents.

Besides medical coverage, health insurance plans can provide Tax benefits to you. The premium paid towards medical insurance can be claimed as Health Insurance Tax Deduction under section 80D of the Income Tax Act, 1961.

You can claim tax deductions, provided you are paying the premium on a mediclaim policy which is in the name of

• Yourself (and / or)
• Your Spouse (and / or)
• Your Parents (Parents need not be dependent on you) (and / or)
• Dependent Children

Health Insurance Tax Deduction FY 2019-20 | Medical Insurance Tax Benefits AY 2020-21

The below threshold limits are applicable for Financial Year 2019-2020 (or) Assessment Year (2020-2021) u/s 80D.

Health insurance premium paid for Self, Spouse or dependent children is tax deductible upto Rs 25,000. If any one of the persons specified is a senior citizen and Mediclaim Insurance premium is paid for such senior citizen then the deduction amount will be Rs. 50,000 for FY 2019-20 (AY 2020-21).

Health Insurance premium paid for parents is tax deductible upto Rs 25,000. If your parents are senior citizens (60 years and above) then the maximum allowable deduction is Rs 50,000. For senior citizens above the age of 60 years, who are not eligible to take health insurance, deduction is allowed for Rs 50,000 towards medical expenditure.

Preventive health checkup (Medical checkups) expenses to the extent of Rs 5,000/- can be claimed as tax deductions. Remember, this is not over and above the individual limits as explained above.

Section 80DD : You can claim up to Rs 75,000 for spending on medical treatments of your dependents (spouse, parents, kids or siblings) who have 40% disability. The tax deduction limit of upto Rs 1.25 lakh in case of severe disability can be availed.

Section 80DDB : An individual (less than 60 years of age) can claim upto Rs 40,000 for the treatment of specified critical ailments. This can also be claimed on behalf of the dependents. The tax deduction limit under this section for Senior Citizens and very Senior Citizens (above 80 years) has been revised to Rs 1,00,000 w.e.f FY 2018-19.

Section 80U : This is similar to Section 80DD. Tax deduction is allowed for the tax assessee who is physically and mentally challenged.

Standard Deduction of Rs 50,000 in lieu of Medical Allowance FY 2019-20

Until FY 2017–18, the medical allowance of up to Rs 15,000 was exempted income from your Gross salary. To claim this, you had to submit medical bills to your employer and get the allowance benefit. The medical reimbursement allowance was exempted under Section 10 of the Income Tax Act.

If you have submitted medical bills (to your employer) towards medical allowance and also paid premium towards your mediclaim (health insurance) then both of them will be listed in your Form-16 under different sections as shown below (click on the images to open them in new browser window).

From FY 2018-19, a standard deduction of Rs 40,000 in lieu of medical expense reimbursement and Travel allowances has been introduced for salaried employees and pensioners. To claim this standard deduction, there is no need to submit medical bills to your employer.

The Standard Deduction of Rs 40,000 for FY 2018-19 has been increased to Rs 50,000 for FY 2019-20.

As per this new proposal, irrespective of amount of taxable salary the assessee will be entitled to get a deduction of Rs.50,000 or taxable salary, whichever is less. Thus suppose if a person has worked for few days (or) months and his salary was just Rs 50,000 for a previous year, then he will be entitled to deduction equal to salary being the same amount. If his salary is less, say Rs 30,000 the deduction shall be restricted to Rs 30,000. If salary exceeds amount of Rs 50,000, the deduction shall be restricted to Rs 50,000.

Health Insurance Tax Benefits | Examples

Let us understand the above scenarios with couple of examples..

Example 1 : Mr Reddy (37 years) has employer’s mediclaim coverage. He pays Rs 15,000 as premium. The coverage is applicable for Mr & Mrs Reddy and their son. He  has also included his parents (father 55 years & mother 52 years) under his employer’s medical insurance scheme. For parents coverage he pays Rs 25,000. He has also incurred Rs 8,000 for preventive health check-ups towards his family. He wants to know how much he can claim as total tax deduction under Section 80d?

Since no one in the family has attained 60 years of age, Mr Reddy can claim a tax deduction of Rs 45,000 (Rs 15,000 + Rs 25,000 + Rs 5000).

Example 2 : Mr Saxena (45 years) is a self-employed person. He has taken Health insurance plan and pays a premium of Rs 26,000. He also pays Rs 61,000 towards his parents’ medical treatment (his Father’s age is 72 years & mother’s age is 68 years, who do not have medical insurance). What is the total tax deduction application in his case?

Mr Saxena can claim a total tax deduction of Rs 75,000 only (Rs 25,000 + Rs 50,000).

Preventive Health checkup & Section 80D | Example

Preventive health checkup (Medical checkups) expenses to the extent of Rs 5,000/- can be claimed as tax deductions. Remember, this is not over and above the individual limits as explained above.

Example – Mr Mehta (65 years) has a mediclaim policy and paid Rs 55,000 as premium . He also spent Rs 6,000 towards health check-up. He wants to know what is the total tax deductible amount?

Since he is a senior citizen, the medical insurance premium to the extent of Rs 50,000 can be claimed as tax deduction under Section 80D. Even though he incurred Rs 61,000 (Rs 55 k + 6k) as expenses, he can  claim tax deduction to the extent of Rs 50,000 only.

Multi-year Health Insurance policy & Section 80D | Example

If you prefer to pay insurance premiums for multiple years in one year itself (you may get discount on premium rates), the deduction shall be allowed proportionately over the years for which the benefit of health insurance is available (subject to the overall monetary limit).

For example : Mr Rahul (30 years) wants to buy a mediclaim cover for self. He finds out that the premium rate is Rs 20,000 per policy year. However, the same plan is available at the rate of Rs 38,000 p.a. for two policy years (a discount of Rs 2,000). So, he buys a multi-year plan and pays the two years premium in one financial year itself. He wants to know what is the total tax deductible amount?

As per the earlier rules (FY 2017-18), you were only allowed to claim a deduction in the first year that too up to Rs 25,000 only. As per the revised limits in the 2018 Budget, Rahul would be able to claim the total premium paid, proportionately, over the 2-year period, which would mean a tax deduction of Rs 19,000 p.a. in both the financial years.

Important points on Medical insurance policies & Tax benefits

• You can claim tax deductions on mediclaim plans provided by your employer or on policies taken by you (independent of your employment). The tax deduction is applicable on both health insurance and mediclaim policies.
• Premium amount can not be paid in cash. Mode of payment can be anything (through credit card, net banking etc.,) except cash payment.
• You can take medical insurance policy on your dependent children and claim tax deductions too. If they are aged above 18 years and employed then they can not be covered. Male children if not employed then they can be covered upto 25 years. Whereas, female children can be covered until she gets married (only if she is unemployed).
• If you are paying health insurance premiums of your in-laws then you can not claim tax deductions. However your spouse can pay the premiums from her taxable income and get the tax benefits.
• If you are paying medical insurance premiums on behalf of your sister or brother then you can not claim tax deductions.
• Only premium amount can be claimed as a tax deduction. Do not include the service tax amount.
• If you have bought a life insurance policy with a Critical Illness rider then Tax deductions on premiums paid towards critical illness rider can be claimed under Section 80D.
• Its the year of payment which matters for tax benefit claim and not the period of insurance cover.
• In case of single premium health insurance policies having cover of more than one year, the deduction shall be allowed on proportionate basis for the number of years for which health insurance cover is provided, subject to the specified monetary limit (as indicated in the above table).
• Can NRIs claim Health Insurance Tax deduction u/s 80D?
  • NRIs who are having health insurance back in India can also avail deduction under Section 80D. The maximum deduction that can be availed is Rs.50,000/- in the case of senior citizens and Rs.25,000/- on self-insured or family (spouse, children).
  • An NRI who has health insurance can avail deduction up to Rs.75,000 including ‘resident‘ senior citizen parents, self-insurance or health insurance for kids or spouse.
  • But, note that deductions under Section 80DD, Section 80DDB and Section 80U are not available for NRIs.

A word of Advice : Kindly note that having a health insurance plan is not the end of your ‘medical insurance’ planning. In fact, it is your first-line of defense only. Considering the ever-increasing medical treatment expenses in India, you have to plan for a mediclaim /family floater + a Super top up plan + an Emergency fund for unforeseen consequences. Don’t depend entirely on health insurance plan alone!

I hope you find this post informative. Do share your views and comments!

Continue reading :

1. 11 vital factors to consider when choosing the Best Health Insurance Plan!
2. Should NRIs buy Health Insurance in India?
3. Latest Health Insurance Incurred Claims Ratio 2018-19 Data | Top Health Insurance Companies List
4. All in one guide to ‘Budget 2019 Proposals related to Personal Finance’
5. Income Tax Deductions List FY 2019-20 | List of important Income Tax Exemptions for AY 2020-21
6. Enhanced Health Insurance Benefits – IRDA’s latest Guidelines (2019-20)

(Image courtesy of everydayplus at FreeDigitalPhotos.net)  (Post published on : 14-August-2019)