Everything you need to know about tax-saving under Section 80D

India is known to be the diabetic capital of the world and it is inching towards the dubious distinction of becoming the cardiac as well as joint replacement capital. Not to scare you; the financial impact of even a few days hospitalisation for something as common as dengue can set you off by several thousand rupees. Expenses on severe health conditions such as a cardiac condition can easily go up to a few lakhs. Some of these health conditions also have a long lasting impact on your financial health. 

So, not only do you shell out money towards treatment, you may also find yourself in a situation where your future earnings potential could be impacted. Welcome to the reality when medical emergencies do not come with announcements and occur commonly. Poor health condition can strike anybody at anytime, as it does not discriminate between the rich or the poor and old or young. Perhaps keeping these realities in mind, the government provides taxpayers an avenue to cushion the impact of poor health with tax deductions towards expenses related to healthcare under Section 80D. 

What can you claim as deduction under Section 80D?

Medical insurance is one way to absorb the financial shocks from poor health. But it does cost to have medical insurance by way of premiums that one needs to pay. Section 80D allows for tax deductions from the total taxable income towards the payment of health insurance premium as well as expenses incurred towards healthcare. 

Rising medical health costs can seriously impact your financial life if you do not plan for such unexpected expenses. While having good health is a virtue, a smart way to mitigate the financial risks that accompany medical expenses is health insurance. 

Unlike Section 80C which has a wide choice of financial instruments that one can choose from to save tax, Section 80D deductions is restricted to costs incurred towards medical insurance, critical illness and other health-related riders offered with a life insurance policy and healthcare-related expenses in case of senior citizens, including preventive health check-up. 

Who can benefit?

The deduction under Section 80D can be claimed by individuals as well as HUF (Hindu Undivided Family). The deduction limit under Section 80D is not as clear cut like the Rs 1.5 lakh limit that comes with Section 80C deduction. The deduction under Section 80D is flexible and allows taxpayers to include their families, including parents who may or may not be senior citizens. 

There are many ways to spread the benefits of this deduction to cover three generation of family members (See: Family Combination). If planned well, young taxpayers can include their parents into this insurance fold, especially when parents may not qualify for health insurance or get one at an exorbitant premium. 

How much tax can you save?

The limits to claim tax deduction under Section 80D depends on who all are included under the health insurance cover. Hence, depending on the taxpayer’s family situation the limit could be Rs 25,000, Rs 50,000, Rs 75,000 or Rs 1 lakh (See: Section 80D and you). 

You can take benefit of Section 80D deduction by purchasing a health insurance plan for yourself, your spouse, dependent children or parents. Other than facing expenses towards health emergencies; the deduction could also be claimed towards preventive health check-up, with the upper limit on such expenses capped at Rs 5,000. 

This expense is however, within the limits that are applied and not over and above the individual limits. In a scenario where senior citizens do not have a health insurance cover, the expense incurred for their treatment within the limits could also be claimed under this deduction. 

Understanding Section 80D tax-saving with examples

Example 1: Nitin is 45 years old and is covered by medical insurance for self, spouse and dependent children, paying Rs 18,000 as annual premium. He has also incurred Rs 4,000 for preventive health check-ups towards his family. 

Tax deduction under Section 80D: Rs 22,000 

Example 2: Sanjeev is 35 and is paying Rs 12,000 as medical insurance for self, spouse and their only child. He has also taken health insurance for his parents (aged 56 and 54) for which he pays Rs 22,000 annual premium. He has also incurred Rs 5,000 for preventive health check-ups towards his family. 

Tax deduction under Section 80D: Rs 47,000 (Rs 12,000 + Rs 22,000 + Rs 5,000)

Example 3: Ramesh is 47 years old and is covered by medical insurance for self, spouse and dependent children, paying Rs 27,000 as annual premium. He also pays Rs 60,000 towards medical treatment of his parents (aged 72 and 70) who do not have medical insurance. 

Tax deduction under Section 80D: Rs 75,000 (Rs 25,000 + Rs 50,000) even though his expenses are Rs 87,000

Bottomline

When claiming tax deduction under Section 80D, do not chase the upper limit that you can claim blindly. Get an assessment on the health insurance that you really need and take adequate cover. Do not try to take cover just to maximise your tax savings, because in doing so you will be spending more money which could be used for other financial needs.