Having a Health Insurance policy not only means protecting yourself from unexpected hospitalization expenses and rising medical expenses, but also saving taxes. The Income Tax Act, 1961, lets you claim a deduction towards the payment of Health Insurance Premiums under Section 80D. The deduction limit is capped at Rs 25,000 for individuals and Rs 50,000 for senior citizens.
However, if you are not attentive to the fine print when it comes to the Tax implications, you might not be able to enjoy tax benefits, even after having Health Insurance and paying the premiums religiously. Beware of the following situations:
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1. When you pay a premium for multi-year policy:
Nowadays, you have certain Health Insurance policies where you can collectively pay premiums for a certain number of years. Such policies have a validity of up to two to three years. The premium amount will increase subsequently. This option can be chosen if do not want to renew your policy every year. You can instead pay premiums for many years in advance.
But the flip side to this facility is that you don’t get to claim Tax deduction under Section 80D. Such deductions can only be claimed in the year in which payments are made. Therefore, a premium paid over and above the limit of Rs 25,000 in the previous year in advance for this year’s policy doesn’t attract Tax benefits.
You can claim a Tax deduction for Health Insurance policy premiums paid self, spouse, dependent children and parents only. Therefore, if you pay premiums for any persons other than such permitted relationships, that portion of premium will not be eligible for Tax deduction.
Even if your Health Insurance plans cover siblings, grandparents, grandchildren, in-laws, etc., you, as an individual taxpayer cannot claim Tax deduction even after paying premiums for them.
If you are part of a Hindu Undivided Family (HUF) only that portion of premiums paid for a HUF member is eligible for Tax deduction.
3. When you do not submit proof of premium payment:
Every financial year, employers are required to pay taxes on your behalf based on your “Investment Declaration”. As such, it is vital to declare all the expenses and investments that you are likely to make in that particular financial year. Therefore, it is vital that you declare the proposed insurance premium. Because your tax liability is estimated based on the declaration you make.
For some reason, if miss to declare Health premiums but are able to submit the proofs before 31st March, you can still get a Tax benefit.
If your children are independent and have started earning, you buying a Health Insurance policy or paying Health Insurance premiums on their behalf, will make you ineligible to claim Tax deductions. It will simply be treated as an expense and be brushed away.
You have to renew your Health Insurance policy in time in order to continue enjoying Tax benefits. Usually, Health Insurance policies have a tenure of a year after which you will have to renew the policy. Hence, failing to renew your policy makes you ineligible to claim the Tax deductions.
Watch out for the aforesaid situations and enjoy Tax benefits of Health Insurance without any hiccups.
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