Jigar M. Patel
International Tax Attorney
Tax Deduction for Medical Insurance Premium
With the increasing cost of medical treatment and hospitalization expenses, medical insurance has assumed prime importance. Section 80D of the Income-tax Act provides that an individual taxpayer can claim a deduction of up to Rs.25,000, out of his income chargeable to tax, in respect of medical insurance premium paid to keep in force an insurance on his own health or for his spouse, parents or dependent children. This deduction can also be claimed in respect of such premium paid by a Hindu Undivided Family (HUF) for any of its members.
Where the individual or his spouse or parents is a senior citizen, above the age of 60 years, such deduction is allowed up to an enhanced limit of Rs.50,000.
Deduction available to Senior Citizen even for Medical Expenditure?
Recognizing the difficulty faced by senior citizens in availing the facility of medical insurance, Section 80D provides that where no amount has been paid by way of medical insurance premium, the aforesaid deduction of up to Rs.50,000 can be availed in respect of actual expenditure incurred on medical treatment.
Additional Deduction to Individual for Parents
Where an individual also pays medical insurance premium for his parents, he would be eligible to claim a separate deduction of Rs.25,000, over and above his own entitlement of Rs.25,000. In case of any senior citizen parents, the said deduction can be claimed for a higher amount of up to Rs.50,000, either for premium paid or expenditure incurred for medical treatment as referred above.
Deduction of Rs.5,000 for Preventive Health Check-up
The aforesaid deduction under Section 80D also includes within its scope deduction for expenditure actually incurred up to Rs.5,000 for the preventive health check-up of the taxpayer, his spouse, parents or dependent children. Expenditure for preventive health checkup would include payments made towards various medical tests of pathology, radiology etc.
Mode of Expenditure for entitlement to deduction
It needs to be noted that for being entitled to claim deduction under Section 80D in respect of payment of medical insurance premium or expenditure for medical treatment, such expenditure should be incurred by any mode of banking or electronic payment, otherwise than by cash. However, the deduction of Rs.5,000 for preventive health check-up can be claimed, even if such expenditure is incurred in cash.
Lump-sum payment of Multi-Year Premium
Where a taxpayer has purchased any multi-year health insurance plan to avail the benefit of discounts and has paid lump-sum premium, deduction under Section 80D can be claimed proportionately.
Smart Tax Planning Tips
With a view to maximise tax saving in respect of payment of medical insurance premium, preventive health check-up and/or expenditure on medical treatment in case of senior citizens, here are some smart tax planning tips:
- Where the premium for the family’s health insurance exceeds Rs.25,000, the same can be strategically split amongst the individual, spouse and HUF.
- Keeping in view the ceiling of deduction of Rs.5,000 for preventive health check-up, where such expenditure for the family exceeds Rs.5,000, it can be conveniently incurred in different entities.
Where the individual / HUF is in a higher tax bracket than senior citizen parents / members who are in a lower tax bracket, it would be smart to take the advantage of tax saving for a higher amount by suitably planning premium payments / expenditure for medical treatment.
