Authored by Amit Chhabra

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Apart from exposing the exorbitant cost of medical treatment in India, the COVID-19 pandemic also underscored the importance of having a health insurance policy. This pandemic taught us a lesson that we should always be ready to grapple with any medical exigency. And health insurance policy is the best tool that enables us to deal with any medical emergency without losing our life savings. Besides giving you a sense of security to deal with any health exigency, health insurance policies also come with some other perks.

The most important being the income tax deductions one can avail of on his/her health insurance policies. And the government encourages people to buy medical insurance by allowing them to avail tax deductions on it under Section 80D of the Income Tax Act.

And as the deadline to file an Income Tax return is just around the corner, the discussion about availing tax deductions is one of the widely discussed themes among the masses. There is no denying the fact that common people struggle hard to understand the nitty-gritty of these deductions. And major confusion remains around the deductions especially associated with health insurance policies. Widely famous section 80D - every individual can claim a deduction for their medical insurance. The benefit is not confined only to your health insurance policy but also to your parents’ policy.

Here is the comprehensive breakdown of the deductions available:

Individual and Parents Below 60 Years

The amount of deductions one can avail of on his/her health insurance policy is determined as per his/her age. If you are a taxpayer below the age of 60 years, you are entitled to avail of tax deduction up to Rs 25,000 on a health insurance policy bought for yourself, spouse and dependent kids. Further, if you are even paying the premium for the health insurance policy of your parents whose age is below 60 years, then you can avail of an additional tax rebate of Rs 25,000.

For example: Rohit, a 31-year-old software professional from Bangalore pays an annual premium of Rs 25000 for a health insurance policy that covers him, his wife and 2 kids and also pays a premium of Rs 25000 for the health insurance policy for his parents. So under 80D, Rohit can claim a deduction of Rs 25,000 for the insurance of self, spouse, and dependent children and an additional deduction of Rs 25000 for his parent's policy. The total tax deduction he can avail is Rs 50,000.

Individual is below 60 but parents are above 60 years

If you are below 60 years of age and spending a substantial amount towards your health insurance policy and health insurance policy of your senior citizen parents, then need not worry as you can avail additional tax deduction under section 80D. If you are below 60 years of age and paying a premium for the health insurance policy for yourself and for your senior citizen parents, then you will be able to avail maximum deduction of up to Rs 75,000. For instance, say Rohit is paying Rs 25,000 premium for his health insurance policy and Rs 50000 for his parents’ health insurance policy, then he can avail deductions up to Rs 75,000.

Individual and Parents Both Above 60 Years

If both - you and your parents are above 60 years of age and you pay a premium for both the health insurance policies, then under section 80D, you can avail a maximum deduction of up to Rs 1,00,000. Say, Rohit is a senior citizen and is paying Rs 40,000 premium for his health insurance policy and Rs 50,000 for his parents’ health insurance policy, under this scenario, Rohit can avail tax deductions of Rs 90,000.

Further, under section 80D, if a non-resident individual is paying the premiums for the health insurance policy of him and his parents, then irrespective of the age, they will be entitled to avail a maximum deduction of Rs 25,000.

Before you are all set to file an ITR return and want to avail these deductions, there are certain other important things that one needs to keep in mind. First, you should know that the deduction has to be taken without showing the Service Tax and Cess portion from the premium amount. Also, the premium paid towards a brother, sister, grandparents, aunts, uncles, or any other relative cannot be claimed as a deduction for taking tax benefit. There are no tax deductions available for group health insurance.

Amit Chhabra is Head-Health Insurance at Policybazaar.com