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Tax Saving on Health Insurance (Section 80D) – Detailed Guide for FY 2018-19 AY 2019-20

Health insurance is like an umbrella – something that you don’t need every day; but once in a while when it rains, it really saves the day for you. On all other days, you won’t miss it. But when it rains and if you don’t have it, you will feel its need.

A good health insurance policy helps to protect your financial savings and makes you better prepared for medical emergencies and expenses.

And besides the obvious medical coverage, health insurance plans also provide tax benefits to you.

Luckily, under Section 80D of the Income Tax Act, you get tax benefits for expenses towards health insurance premiums, preventive health checkup and other medical expenses.

Since most of you will not be hospitalized ever (I hope so!), you would be more interested in the tax benefits on the medical insurance premiums. And yes, indeed the premium paid towards health insurance is tax deductible under section 80D of the Income Tax Act, 1961.

Let’s move on and understand the tax benefits on health insurance in a bit more detail.

What is Section 80D that gives Tax Benefits on Health & Medical Insurance?

Even if tax benefits weren’t there, even then buying health insurance is a sensible decision.

Why would you want to pay big hospital bills when you can buy medical insurance by paying a small premium to cover that risk.

Imagine not buying health insurance and saving Rs 10,000 for 3-4 years and then getting hospitalized with a big bill of Rs 5 lakh. All small savings you made by ‘not buying’ health insurance is screwed up with a medical bill several times larger.

Unfortunately, most Indians still don’t see it like that.

They feel its an unnecessary expense and waste of money. Luckily, our governments have offered additional freebies in form of tax benefits to push people to buy health insurance.

And this benefit is offered via the Section 80D of the Income Tax Act, 1961 which relates to the tax deductions on medical insurance.

Section 80D specifically provides deduction in taxable income to the extent of the premiums paid on the purchase of health insurance or medical insurance or mediclaim products.

It even includes the premiums paid for the health insurance of your parents, children and spouse (wife/ husband).

And it doesn’t matter whether you purchase health insurance through a person or go for an online health insurance cover which are gaining popularity these days. You will get tax benefits in either case.

Also, the tax benefits under Section 80D are over and above the benefits under other sections like Section 80C.

Who is eligible for Tax Benefits under Section 80D?

If you are paying premiums for health or medical insurance purchased for the following, you will get tax benefits under section 80D:

  • Yourself
  • Your spouse
  • Dependent children
  • Parents

What about other family members?

Like, let’s say your brothers, sisters, father-in-law, mother-in-law, uncles, aunts, cousins, etc.?

Health insurance premium paid for any other person is not eligible for tax deduction. But you can ofcourse include other family members in the health insurance coverage if you wish to. It is just that the premium paid for them cannot be considered for tax benefits.

Maximum Deduction Limit under Section 80D for FY 2018-19 (AY 2019-20)

There are several different types of deductions that you can be claimed for tax benefits under Section 80D:

  • Tax deduction on health insurance premiums paid for yourself, spouse & children
  • Tax deduction on health insurance premiums paid for parents
  • Tax deduction on medical expenses of super senior citizens
  • Tax deduction on preventive health check-up expenses

Let’s have a look at each of these in detail:

Tax Deduction on Health Insurance Premiums Paid for Self, Spouse & Children (Family):

  • If you pay the premium for health insurance taken for you, spouse and children, then you can claim a total deduction of up to Rs 25,000 for FY 2018-19 (AY 2019-20).
  • If you or spouse is a senior citizen, then you can claim a higher total deduction of up to Rs 50,000 for FY 2018-19 (AY 2019-20). This limit for senior citizen was revised upwards in the past years. Earlier (in FY 2017-18 AY 2018-19), if you or spouse were a senior citizen, then the maximum deduction that could be claimed was up to Rs 30,000. This has now been revised to Rs 50,000.

In addition to the above deduction, you can also get tax deductions for premiums paid for parents.

Tax Deduction on Health Insurance Premium Paid for Parents: 

If you pay the premium for medical or health insurance of your parents’, then you can claim deductions as follows:

  • If both parents are not senior citizens (< 60 years), then you can claim a deduction of up to Rs 25,000 for FY 2018-19 (AY 2019-20)
  • If even one parent is a senior citizen (>=60 years), then you can claim a deduction of up to Rs 50,000 for FY 2018-19 (AY 2019-20). This limit for senior citizen was revised in the past year. Earlier (in FY 2017-18 AY 2018-19), if your parents were senior citizens, then the maximum deduction that could be claimed was up to Rs 30,000. This has now been revised to Rs 50,000.

It is worth noting that while claiming deductions under Section 80D, you cannot include premiums paid for children who are earning. But you can still claim the benefit for earning spouse and parents.

Tax Deduction on Preventive Health Checkup Expenses:

If you spend money on getting health checkups done during the financial year, then you can also claim a deduction of up to Rs 5000 for preventive health checkup for self, spouse and children under Section 80D.

But this is not an additional benefit but is inclusive within the overall limits discussed above. That is, the total tax benefit for health insurance premium and preventive health checkup is limited to Rs 25,000 (or Rs 50,000), as the case may be. Remember that the limit of Rs 5000 is the maximum total deduction allowed for preventive health check-ups.

Also, this deduction cannot be claimed on a per person basis but as an aggregate option available – so the total deduction allowed cannot be more than Rs 5000.

For example – Suppose you pay a health insurance premium of Rs 21,000 for self, wife and children. In addition, you also get yourself a preventive health checkup that costs Rs 6000. Now, how much tax deduction are you eligible for? You are allowed a maximum deduction of Rs 25,000 under Section 80D. So you get a deduction of Rs 21,000 towards insurance premiums paid; and Rs 4000 for expenses towards preventive health check-up. The deduction towards preventive health check-up has been restricted to Rs 4000 (against your actual expense of Rs 6000) as the overall deduction cannot exceed Rs 25,000 in this case (i.e. Rs 21,000 + Rs 4000).

Side Note – As you cross 35-40, it actually makes sense to get yourself evaluated medically atleast once a year so that any condition/disease in its early stages can be better handled and addressed appropriately. So this tax deduction on preventive health check-up expenses under section 80D also has positive health side effects!

Tax Deduction on Medical Expenses for Uninsured Senior Citizens (>= 60 years) (Section 80D) – You or Parents

If you or any of your parents are a senior citizen, i.e. above 60 years, and have not purchased any health or medical insurance, then you can avail a deduction for any medical expenditure incurred up to Rs 50,000 in FY 2018-19 (AY 2019-20).

Remember, to claim this deduction for actual medical expense, the concerned person must be a senior citizen (you, spouse or parents) and also uninsured (i.e. no premium should have been paid for any health insurance).

Before FY2018-19 and till FY2017-18, this rule was applicable for uninsured ‘very senior’ citizen (above 80 years) and the limit was set at Rs 30,000 per financial year. Now, this benefit is available to younger(!) senior citizens (who are above 60 years) too.

So let me summarize the Income Tax deduction of Health Insurance Premiums in India.

Tax Deductions under Section 80D for Health Insurance (Financial Year 2018-19 or Assessment Year 2019-20)

The table below lists the tax deduction limits applicable to health insurance premiums (for the financial year 2018-2019 or assessment year 2019-2020):

Health Insurance tax benefits Sec 80D 2019 2020

So what will be combined limits on tax deductions for a family with self, spouse, children and parents?

  • If you, spouse, children and parents are all below 60 years of age, then the total limit is Rs 25,000 + Rs 25,000 = Rs 50,000 under Section 80D
  • If you, spouse, children are below 60 years; and if even one of your parents is above 60 years of age, then the total limit is Rs 25,000 + Rs 50,000 = Rs 75,000 under Section 80D
  • If any of you or spouse is above age 60; and if even one of your parents is also above 60 years of age, then the total limit is Rs 50,000 + Rs 50,000 = Rs 1,00,000 Rs 1 lakh under Section 80D

But please do remember that these are maximum limits specified under Section 80D. If the actual premium paid is less than the limits, then the benefit will be limited to the actual premiums paid only.

To further aid the understanding, allow me to share a few examples.

Examples of Medical Insurance Premiums & Section 80D Tax Benefits

Case 1: You (28), Spouse (27), Child (2), Father (58), Mother (56)

You are eligible for Rs 25,000 towards health insurance premium and checkup for self, spouse and child. In addition, you are also eligible for Rs 25,000 towards health insurance premium and checkup for parents. Since no one in the family has attained 60 years of age, the total deduction eligible under Section 80D is Rs 50,000 for the financial year.

Case 2: You (31), Spouse (29), Child (4), Father (63), Mother (58)

You are eligible for Rs 25,000 towards health insurance premium and checkup for self, spouse and child. In addition, you are also eligible for Rs 50,000 towards health insurance premium and checkup for parents (as one of the parent is above 60). Since one of the parents has attained the age of 60, the total deduction eligible under Section 80D is Rs 75,000 for the financial year.

Case 3: You (61), Spouse (55), Father (82), Mother (79)

You are eligible for Rs 50,000 towards health insurance premium and checkup for self and spouse as you are in senior citizen category yourself. In addition, you are also eligible for Rs 50,000 towards health insurance premium and checkup for parents (as one or both the parent are above 60). Since both you and your parents have crossed the age of 60, the total deduction eligible under Section 80D is Rs 1,00,000 or Rs 1 lakh for the financial year.

Sample Calculation of Tax Deductions under Section 80D

Suppose you are aged 38, your wife is 35, son is 8 and daughter is 5 years old.

You have taken a health insurance plan for all for of you that has an annual premium of Rs 23,000. In addition, you had to pay Rs 8000 for preventive health checkup during the financial year.

In addition, your parents aged 66 and 59 are also dependent on you. For insuring their health, you have taken a health cover for them separately for which the premium is Rs 57,000.

So what all tax deductions can be claimed by you for the financial year under Section 80D?

  • For Self (+ spouse + children) – All of you are under the age of 60. You are eligible for Rs 25,000 towards health insurance premium and checkup for self, spouse and child. Since the premium + health checkup costs exceed the limit (Rs 23,000 + Rs 8000 = Rs 31,000), the benefit available will be limited to Rs 25,000 only.
  • For Parents – One of the parents is above 60 and hence, senior citizen. Since you are paying medical insurance premium for them, you are eligible for Rs 50,000 towards health insurance premium. Since the premium exceeds the limit (Rs 57,000), the benefit available will be limited to Rs 50,000 only.
  • Therefore, the total deduction available in this case will be Rs 25,000 + Rs 50,000 = Rs 75,000 only.

I hope this fully explains everything there is about the tax savings that you can do with your health insurance under Section 80D.

So let’s move on…

Tax benefit on Multi-year Health Insurance policy under Section 80D

Many people pay health insurance premiums for several years in one go as there are discounts on offer for multi-year health insurance policies.

If that’s the case, then the tax deduction is allowed proportionately over the years for which the benefit of health insurance is available, subject obviously to the overall limit for each financial year).

So let’s say you are 35 years old (i.e. less than 60 years) and your health insurance policy for 1 year has a premium of Rs 15,000 and that for 2 years us Rs 27,000.

So if you go for the 2-year health insurance plan and pay the premium for two years in one financial year itself, then what will be the tax deductions eligible?

Since current rules state that an individual is allowed to claim a deduction of up to Rs 25,000 in a financial year, you will be allowed to claim the total premium paid, but proportionately, over the 2-year period. This means that you will get a tax deduction of Rs 13,500 each (Rs 27,000 divided by 2) in both the financial years.

More things to know about Section 80D tax benefits

  • It is not necessary to claim deduction using just one policy. You can claim deductions under multiple policies subject to overall limits of Rs 25,000 or Rs 50,000 as explained earlier.
  • The group health insurance premium paid by your employer is not eligible for deduction under Section 80D. However, if you pay an additional premium to increase the coverage of the existing group cover, then you can claim the deduction against this additional contribution.
  • The premiums paid for Critical Illness policies are also eligible for tax benefits under Section 80D.
  • The premiums paid for Top-Up or Super Top-Up health insurance plans are also eligible for tax benefits under Section 80D.
  • The premiums of term life insurance plans are not included in Section 80D. But in any case, term insurance premiums are eligible for tax benefits under Section 80C instead. (Related: How much life insurance to buy?)
  • If you have taken a Critical Illness rider as part of the life insurance policy, then the premium paid for the specific rider is eligible for tax deduction under Section 80D.
  • Whether you are paying a health insurance premium for the first time or you are paying the renewal premium for continuing your existing health insurance, you can claim deductions in either case.
  • As mentioned earlier, you cannot get benefits on health premiums paid for your brother or sister. You can also not claim benefits for premiums of your father-in-law and mother-in-law. But your spouse, if paying the premiums from her own taxable income, then the benefits can be claimed by your spouse.

A lot of people get confused between Section 80D and very popular Section 80C of the Income Tax Act. Let’s briefly see what is the major difference between the two.

Difference between Section 80D and Section 80C

Section 80C of the Income Tax Act provides deductions of up to Rs 1.5 lakh per year on money spent on various options like life insurance premiums, EPF (& VPF) contributions, PPF savings, NPS, NSC, tax saving ELSS mutual funds, school fee of children, home loan repayment, etc.

(Read more here on how to save tax using Section 80C.)

On the other hand, Section 80D is, in addition, to limit of Section 80C and is meant exclusively for health insurance premiums paid and preventive health checkup, etc. The tax benefit available under Section 80D varies from Rs 25,000 to Rs 1 lakh subject to certain conditions.

I am sure that by now, you would have a clear idea about how to save taxes using health insurance in India.

But let me remind you that whether you get tax benefits or not, health insurance is extremely important.

It’s a must-have for everyone!

Why would anyone want to be penny-wise-pound-foolish and try their lucks? The medical costs are rising and just one visit to a hospital and hospital bill can set you back by a lot of money which will be much higher than the money you can save by avoiding health insurance.

If you are unlucky and end up in a hospital without health insurance, it can erode your hard-earned savings and plunge you in a financial crisis. So do not test your luck for saving just a few thousands.

Luckily in India, you are getting tax benefits on the health insurance premiums you pay.

So you have an added incentive there. You can maximize your tax savings by using health insurance for yourself, family and parents by paying the premiums.

The Section 80D of the Income Tax Act offers one of the best tax-saving benefits in India of up to Rs 1 lakh deduction specifically for premiums paid on the purchase of health insurance or medical insurance or mediclaim products. Do not ignore this tax benefit for your own good.

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Section 80C and How Salaried Young Indians can Save Tax & Grow Rich?

save-tax-section-80c-grow-rich

In India, most investment decisions are taken keeping ‘tax-savings’ in mind.

Saving taxes is important.. but it’s not enough.

I have myself realized this quite late (but luckily, not very late).

No doubt you should try to maximize your tax savings using various sections of income tax laws (like Section 80C, 24B, etc.), as it puts more money in your pocket to do whatever you want to do with it.

And why not? After all it’s your hard earned money.

But more often than not, tax-saving investments tend to happen without much thought. People generally start asking about how to save taxes using Section 80C, at the last minute.

And that is not smart.

The result is that people give priority to saving tax alone instead of selecting the right financial product as per their financial goals. And that is where they step on the wrong financial path.

If you want to get rich or want to achieve some important financial goals, then tax saving will neither make you rich nor help you achieve those goals. For that, you need proper planning and more importantly, discipline to stick to the plan.

Tax saving will always be a side effect of a proper financial plan. It should never be ‘the’ plan in itself.

Now I have already written in detail about why Tax saving is not sufficient and why you need to do proper investment planning. So I won’t go down that line again…

Instead, what triggered me into writing this post is that I get several mails from young readers who want to know the best strategy to save taxes. Their queries range from asking for tax saving tips for salaried employees to wanting to know the best tax saving options for their age groups.

They are rightly worried about saving taxes and I am glad that they know it is important. They are technologically smart enough to use income tax calculators to do online efiling of taxes themselves, if need be. But many of them don’t realize the gravity of the fact that various tax-saving products do more than just tax savings – They invest your money for future returns too.

So it is very important to not be on a lookout for just the best tax saving strategy.

Instead, being young these people should focus on choosing the right investment products based on their goals, horizon and risk appetite. Tax saving comes later.

Always remember that that investing properly in right assets has a far greater role to play in your get-rich plans. Saving taxes alone won’t make you rich.

If you are Young, You are Lucky!

The best thing about being young is that one can make financial mistakes and still get back on the right track – as one has several years (or decades) in front of them.

So if someone starts working at the age of 21-22 and is mismanaging their money till say 30, then they still have another 25-30 years left to get it right.

On the other hand, if someone is bullshitting with their money till 45-48, then there is not much time left (only about 12-15 years). It is very difficult to correct the mistakes of past so many years.

So being young has an inherent advantage, even when the earnings during that time are low (and here is the big proof).

So coming back to the young earners, what is it that they can do to invest wisely as well as save taxes

Section 80C to your Rescue

The Section 80C offers various investment-cum-savings options to people – which not only generate returns but can also be claimed as deduction while calculating taxable income.

Currently, the total maximum deduction under Section 80C is Rs 1.5 lac.

This means that you can reduce your taxable income by up to Rs 1.5 lac every year, if the amount is invested or spent on any of the options that are covered under the Section.

Depending on your tax bracket, this can mean a saving of Rs 15,450 or Rs 30,900 or Rs 46,350 for tax brackets of 10%, 20% and 30% respectively.

So what are various options under Section 80C for young earners?

There are several:

  • EPF (Employee Provident Fund) – Generally, the salary is automatically deducted for contribution towards EPF.
  • VPF (Voluntary Provident Fund) – Any additional contribution you make above the required EPF contribution is taken as VPF.
  • PPF (Public Provident Fund) – use this FREE Excel-based PPF calculator to see how much you can save using PPF alone (or read How to save Rs 1 crore using PPF?)
  • ELSS Funds
  • Life Insurance Premiums (Avoid Endowment & Moneyback Insurance Policies. Choose plan Term Plans)
  • 5-year bank FDs
  • NSC
  • Principal Repayment on a housing loan
  • NPS (National Pension Scheme) – You can invest up to Rs 50,000 in NPS for additional tax benefit under Section 80CCD (1B). So total tax benefit can go up to Rs 2 lacs.

Too many options!

And I haven’t even listed all of them. I have just mentioned those that are more suitable for young people.

So how do we shortlist from these options?

The first step is to cut out the noise and focus on young people’s goals and asset allocation.

So ideally, these people are those whose retirement is almost 30 years away. For such a time horizon, one should invest a major chunk of investible money in equity or equity-linked products.

Why equity?

Equity is the clear winner when it comes to generating best post-tax returns in the long term. More importantly, equity can beat inflation comfortably and that is what you want to do.

What Should Young Earners Do?

The answer is – Keep it Simple.

One should maintain a reasonable diversification among Section 80C investments. But no need to invest in too many products.

So if you are young and want to invest money towards your retirement (or better still, early retirement and financial independence), then following two products are sufficient from investment + tax saving perspective:

  • ELSS (Equity Linked Saving Scheme) – (Asset Class – Equity)
  • PPF (+ EPF if you have that) – (Asset Class – Debt)

ELSS are tax saving mutual funds that have a lock-in of 3 years.

Some of the best mutual funds have given 15-18% average annual returns since inception. So that is no brainer when it comes to returns.

To bring stability and diversification, debt has to be a part of long term portfolio. EPF + PPF do that job very well. EPF is mandatory for most salaried people. If your EPF deductions are not sufficient, you can go for PPF (or VPF in your organization).

financial planning young salaried

Now you may ask how much to invest in each of these two assets.

The answer ideally depends on one’s risk appetite. So if you don’t like to take risk, then invest more in EPF/PPF/VPF. If you are comfortable taking risk, invest more in ELSS.

But is this approach really correct?

Now you may want to take lower risk (being very conservative) even though the time horizon here (30+ years) is very long and suitable for taking bigger exposure to higher risk products.

So there will always be some difference between what is right and what you are comfortable doing.

But at the end of the day, its an individual’s call.

To give some broad percentages around how much to invest where, one can follow this depending on their risk appetite:

  • Highly Aggressive: 80% Equity + 20% Debt
  • Aggressive: 60-70% Equity + 30-40% Debt
  • Balanced: 50% Equity + 50% Debt
  • Conservative: 20-40% Equity + 60-80% Debt

Asset Allocation Aggressive Balanced Conservative

For the record, I belong to the highly aggressive or aggressive category – for most of the times.

Now you may not want to invest so much in equity.

That is fine.

But you need to understand that for really long term investments, it’s better to have a higher equity component in your investments, even if you are a conservative investor (ofcourse not at the expenses of spending sleepless nights).

As for the other options within Section 80C, there is no clear-cut categorization of what is good and what isn’t. But I think that one should keep their personal finances clean and clutter-free.

That means being ruthless about not investing in unnecessary products.

Some of the products like NPS, NSC, Ulips, etc. are not suitable for most young people. Traditional life insurance plans that offer dual advantage of investments and insurance are bullshit.

Sidenote –

If you have already taken a home loan, then the principal repayments made during the year will qualify for Section 80C benefits too. In that case, it’s possible that your entire exemption limit under Section 80C (of Rs 1.5 lac) is utilized by EPF, Insurance Premiums and Home Loan Principal. But that doesn’t mean that you should not be saving for your retirement goal. Ofcourse you can delay saving for your retirement and focus on clearing the loan first. But that again, is an individual’s decision about prioritizing one goal over the other. Both approaches have their merits.

As for Section 80C’s deduction limit of Rs 1.5 lac, I personally think that it is time for the government to increase the limit from Rs 1.5 lac to maybe Rs 3.5 lac. For many taxpayers, this deduction is quickly exhausted. So it is time to revise it.

Or better still, link the limit to a person’s individual income. Higher the income, higher will be the limit under Section 80C.

But that is me loud thinking. I am sure my voice won’t reach the government. 😉

Coming back to young earners…

I would say that you can try out things with your money for few years and see what works and what doesn’t. It is a good and useful learning and helps in the long term.

But sooner you understand the realities of investments and the fact that tax-saving is not enough, you will be in a position to create the correct financial path for yourself. And this path can take you where you want to go – financial freedom or even becoming the richest person your family has ever had. And that is a good target. Isn’t it?

So with couple of months left to save taxes in this year, think and decide what approach you want to take.

Just do remember that tax saving alone is not enough. Those who tell you that will never be rich.

Financial goal based investment plan should always precede your tax planning. And if the investment plan is properly created, it will ensure maximum tax efficiency too.

So become a smart investor and try to find the right balance between your financial goals and tax savings. And please do not invest just to save taxes.