Health insurance premiums paid for yourself, your family, and your parents not only give financial assistance in the event of a medical emergency but also lower your tax liability.
Tax benefits of health insurance are not something new, but before all that, the majority of financial advisers recommend that the first step in just about any financial strategy is to ensure that you have sufficient health insurance coverage. Before you start saving for your life’s goals, you must have proper health insurance coverage for yourself and one’s family. Furthermore, paying your health insurance premium will help you save on taxes too.
Save More Tax with Health Insurance
When it’s tax season, you need to develop fresh strategies to save money on your taxes. A little-known secret is that when you invest wisely in health insurance, you can save more.
Where health insurance is required, it might also help in saving money on your taxes. Section 80D of the Income Tax Act permits a person to deduct insurance premium payments made over the year to protect the health of an individual and family members from his/her taxable income. Regardless of whether one’s parents are economically dependent, the deduction per section 80D is possible.
Therefore, only the premiums paid for your parents and not your parents-in-law are eligible for a deduction. When your spouse works, she could save money on taxes by purchasing health insurance for his/her parents and claiming a deduction of up to Rs 50,000. You’ll be able to maximize the tax savings on the entire family’s income in this manner. There are various advantages to having basic health insurance coverage, whether offered by your company or purchased independently. Payments for health insurance premiums must be made in a method other than cash if the deduction is to be claimed.
These Advantages Not only Cover Medical Expenses but Also Help You to Get Tax Benefits on Health Insurance
Coverage for Your Parents
Take out health insurance coverage for your parents to save money on taxes as per Section 80D of the Internal Revenue Code. The cost of a health insurance policy for yourself, your spouse, your children, and your parents is tax-free. Furthermore, regardless of whether or not your parents or children are financially reliant on you, you are eligible for this benefit, provided all the payments are in your name.
The insured’s age determines the level of benefit you could get from these plans. When none of the insured individuals is over 60, you can claim an optimum tax benefit of 25,000 each fiscal year.
You can earn an optimal advantage of 30,000 on your taxable income when your parents are senior citizens (over 60 years old). This brings your total tax deductions as per Section 80D to Rs 55,000. Likewise, when both you and your parents are policyholders over the age of 60, you will be eligible for a Rs 60,000 tax exemption.
Preventive Health Check-Ups
Preventive health check-ups are included in the tax mentioned above exemption limitations. The maximum amount allowed is 5,000, which implies that if your premiums total Rs 20,000, you can use this clause to get a Rs 25,000 exemption by opting for preventive health check-ups.
Check to see if your network hospital provides a bundle of preventive health screenings. A yearly check-up will alert you and your loved ones against any lifestyle-related or even chronic illnesses and allow you to take preventative measures early on.
It’s vital to remember that these tax breaks on health insurance policies only apply when you pay by a method apart from cash. Internet banking, checks, demand drafts, and even credit cards are among these options.
This law, therefore, does not pertain to preventive health examinations. These could be paid in cash and are exempted under Section 80D if certain conditions are met.
Mode of Payment
Cash payments for health insurance premiums are not eligible for tax exemption. To be qualified for a tax deduction, you must pay your premiums using a method other than cash, such as credit card, check, debit card, digital channels, net banking, and so on. Cash payments for preventive health assessment, on the other hand, are tax-deductible.
Add-Ons: Super Top-Ups, Disability Riders, and Critical Illness Plans
Tax benefits of health insurance under section 80D are restricted to deductions on health insurance plans and disability riders, super top-ups, and critical illness plans. Therefore, the policyholder can not only safeguard themselves from unforeseen medical expenditure but also use these deductions. There are two kinds of health insurance plans- ‘fixed benefit’ and ‘indemnity’ health insurance plan. Tax exemption can be availed on both health insurance plans. Buying a health insurance plan should be done with the primary aim of protecting yourself and your family members and not just to avail yourself of tax benefits.
In the event of several claims in a policy year, certain indemnity insurance plans and super top-ups include a Reset Benefit, which resets the total insured to 100 percent. As a result, even after you’ve filed a claim, you could rest guaranteed that the expenses will be covered.
Both ‘indemnity’ and ‘fixed benefit’ health insurance policies are eligible for tax deductions. In this case, indemnity refers to insurance that covers all hospitalization expenditures, including pre and post-hospitalization charges, up to the policy’s sum insured limit. The insurance doesn’t terminate unless and until the total sum covered in the policy is used, provided that the policy is renewed on time.
Set benefit health insurance policies pay policyholders a payout on the initial diagnosis or occurrence of the specified diseases. Hospital cash and critical illness policies are examples of these policies, which end once the payout is made.
Investing in health insurance policies for yourself and your loved ones is indeed a smart move, not only because of the tax benefits of health insurance but also because of the additional coverage alternatives. Furthermore, given the double-digit healthcare inflation from the last decade, health insurance which covers all charges in a cashless manner will undoubtedly be beneficial.
It is sometimes stated one shouldn’t invest solely to reduce taxes or get tax benefits of health insurance. In the case of health insurance, that is not an investment; in any event, the premium is paid not just to provide coverage but also to help you save money on taxes. Purchasing health insurance is beneficial in light of escalating hospital charges.