Section 80D Deduction - Eligibility, Deduction & Calculation

We are usually unprepared for medical emergencies. Hence, when it comes to health insurance, it is always preferable to be safe than sorry.

In India, a vast majority of people do not have health insurance, therefore they highly rely on their savings or take out loans in case of an emergency. Medical insurance is a requirement for your investment portfolio, and the government encourages everyone to purchase it by offering Section 80D tax benefits.

What is Section 80D?

Health insurance premium payments made in a given year are eligible for deduction from total income for any "Individual" or "HUF" under Section 80D. Additionally, top-up health plans, critical illness insurance, and critical illness riders are also eligible for this deduction.

The deduction benefit is available when purchasing a health insurance plan for yourself, your spouse, your dependent children, or your parents.

What's best is that this deduction(s) can be claimed along with claiming deductions allowed by Section 80C.

Suggested Read: All About Section 80C

Who is eligible for deduction under Section 80D?

Deduction for medical insurance premiums and medical expenses for senior citizens is allowed to the Individual or HUF category of taxpayers only. For individual or HUF taxpayers, insurance can be availed for :

• Self
• Spouse
• Dependent children
• Dependent Parents
• Dependent Parent-in-laws

Any other entity cannot claim this deduction. For example, a company or a firm cannot claim a deduction under this Section.

What payments are eligible as deduction under Section 80D?

The following payments are eligible for deductions under Section 80D for either an individual or HUF:

• A health insurance premium paid in any way other than cash for the self, spouse, kids, or parents who are dependent.
• Expenses related to preventative health checkups
• Costs associated with treating a senior (60 years of age or older) who is not covered by a health insurance plan.
• The payment given to the Central Government's health scheme or any other program that the government has announced.

Deduction available under Section 80D

The amount of deduction that an individual taxpayer is eligible for under various circumstances is shown in the following table:

Individual:

• You - an individual taxpayer may deduct up to ₹ 25,000 for your own health insurance as well as their spouse and dependent children's insurance.
• If your parents are older than 60, you may be eligible for an additional/separate deduction of up to ₹ 50,000. If your parents are below 60 years of age, you may be eligible for deduction of up to ₹ 25,000 only.
• If you pay medical costs for senior citizens (yourself, your spouse, your dependent children, or your parents) that are not covered by health insurance, you may be eligible to get such expenses covered under the deduction limit of up to the ₹ 50,000.
• The maximum deduction available under this clause is ₹ 1,00,000 if both the taxpayer and the taxpayer's parents are older than 60 years old and have medical insurance. You may deduct the costs associated with treating elderly people (taxpayer/family and parents) for medical purposes up to the allotted amount if they are not covered by health insurance.
• Senior citizens over the age of 60 include both senior and very senior persons.

HUF - Hindu Undivided Family

• Any medical claim made for one of the HUF's members may be deducted under Section 80D.
• If the covered member is under 60 years old, the deduction will be ₹ 25,000; if the insured person is 60 years or more, the deduction will be ₹ 50,000.

Example:

Ashish is 45 years of age and his father is 75 years of age. The insurance premiums Ashish pays for his father's and his own medical coverage are ₹ 30,000 and ₹ 35,000, respectively. What is the highest amount he might deduct in accordance with Section 80D?

Answer:

Ashish is eligible to receive up to ₹ 25,000 for the insurance premium he paid. Regarding the policy bought for his father (a senior citizen), Ashish is eligible to receive up to ₹ 50,000. The permitted deductions in the example situation are ₹ 25,000 and ₹ 35,000. So, he can deduct a total of ₹ 60,000 for the entire year.

What is a preventive health check-up under Section 80D?

In 2013–14, the government passed a preventative health checkup deduction to motivate people to take a more proactive approach to their health. Through regular health examinations, the goal of preventative health check-ups is to spot any illnesses early on and reduce risk factors.

A deduction of ₹ 5,000 is allowed under Section 80D for any payments made for preventative health checkups. This deduction will not exceed the overall cap of ₹ 25,000 or ₹ 50,000, as applicable.

The individual may also claim this deduction on behalf of himself, his spouse, any dependent children, or his parents. Cash is accepted as payment for preventive health checks.

For Example:

For the financial year 2020–2021, Abhishek has paid a health insurance premium of ₹ 23,000 to cover the health of his wife and any dependent children. He spent ₹ 5,000 on a health examination for himself as well.

Section 80D of the Income Tax Act allows Abhishek to deduct a maximum of ₹ 25,000. Hence, ₹ 23,000 have been approved for the payment of insurance premiums, and ₹ 2,000 have been approved for medical examinations. The deduction for preventative health exams has been limited to ₹ 2,000 because the total deduction in this instance cannot be more than ₹ 25,000.

Section 80D Deduction in case of Single Premium Health Insurance Policies

A new provision for claiming a deduction in relation to single premium health insurance policies was included in the 2018 budget.

According to the new rule, a taxpayer may claim a deduction equivalent to the proper portion of the sum under Section 80D where a lump sum premium payment for an insurance valid for more than a year was made in a single year.

By dividing the lump sum premium paid by the duration of the policy, the proper fraction is calculated. However, this would once more be restricted by the amounts of ₹ 25,000 or ₹ 50,000, as applicable.

Please Note:

The following points should be remembered at the time of purchase of health insurance for claiming 80D deduction:

• You cannot deduct the cost of medical insurance for your brother, sister, grandparents, aunts, uncles, or other family members when claiming tax advantages.
• It is not possible to claim a tax credit for premiums paid on behalf of working children.
• If you and a parent each paid a portion of the bill, you can each deduct the amount you each contributed.
• The service tax and cess part from the premium amount must not be deducted in the calculation of the deduction.
• There is no deduction available for the company-provided group health insurance premium.
• Any form of premium payment other than cash is eligible for deduction. Therefore, a premium paid online or with a credit card is also eligible for a deduction.

Exclusions in Section 80D

The following are the exclusions of Section 80D

• Payment Mode of the Premiums: To claim tax benefits under the Section 80D, only the taxpayer must pay the health insurance premiums. If the premium amount is paid by any third-party tax benefits cannot be availed. Moreover, if the premium payments are paid in cash then the taxpayer is not eligible to get tax benefits.
• Goods and Service Tax: A Goods and Service Tax of 18 percent is chargeable on health insurance premiums paid. Moreover, no tax benefits are provided on the Goods and Service Tax and CESS charges that are levied on the premium payments.
• Group Health Insurance: Group health insurance policies are not eligible to claim any tax benefits under Section 80D. However, if the taxpayer chooses to make extra payments to increase the group cover then he or she can claim tax benefits on the additional amount paid.

What is the difference between sections 80D, 80DD, 80DDB and 80U?

The difference between Sections 80D, 80DD, 80DDB and 80U are as follows:

Conclusion

Each of us needs a medical insurance policy in order to be protected. When you unexpectedly need large sums of money, these plans offer a strong financial backup.

Hence, it is important to get the best health insurance policy for you. To help you in this, you can feel free to get in touch with our trusted financial advisors today!