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4 Simple Steps To Understand Tax Benefit On A Mediclaim Policy - Outside View by PersonalFN

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4 Simple Steps To Understand Tax Benefit On A Mediclaim Policy
Mar 23, 2017

In response to our article: All You Wanted to Know About StarFirst Combi Plans; we received queries on the tax benefit an individual can claim on his/her health insurance premiums under section 80D of the Income- Tax Act, 1961. There seemed to be a lot of confusion on the exact amount that is permitted to be claimed under different scenarios. So, for the benefit of all, we decided to address the queries through today's article.

The Income Tax Act, 1961 suggests the maximum amount that can be deducted under section 80D in difference scenarios. Here's a snapshot:

Calculation of Tax Benefit Under Section 80D
Serial No. Premium Applicable provision under Income Tax Act Whom can you pay for? Can you pay in cash and still avail deduction under Income Tax Act? Maximum amount that can be claimed under Income Tax
1 Mediclaim Premium for your family 
(eldest member less than 60 years)
Section 80D Self, spouse and dependent children No, you cannot Rs 25,000
2 Mediclaim Premium for your family
(eldest member above 60 years)
Section 80D Self, spouse and dependent children No, you cannot Rs 30,000
3 Mediclaim Premium 
(either mother or father less than 60 years)
Section 80D Parents (whether dependant or not) No, you cannot Rs 25,000
4 Mediclaim Premium 
(either mother or father above 60 years)
Section 80D Parents (whether dependant or not) No, you cannot Rs 30,000

Note: The above table is for illustration purpose only
Source: PersonalFN Research

To elucidate the above table, let us understand the fundamentals in different scenarios:

Section 80D Benefits for F.Y. 2016-17 (A.Y. 2017-18)
Scenario Health insurance premium paid and maximum tax deduction limits Total Deduction u/s 80D (Rs) (c ) = (a+b)
Self, spouse and dependent children (Rs) (a) Parents (whether dependent or not) (Rs) (b)
No one in your family has attained 60 years of age AND your parents haven’t attended 60 years age either 25,000 25,000 50,000
The eldest member in your family (self, spouse and dependent children) is less than 60 years AND at least one of your parent (either mother or father) is above 60 years 25,000 30,000 55,000
The eldest member in your family (self, spouse and dependent children) is above 60 years AND at least one of your parent (either mother or father) is above 60 years 30,000 30,000 60,000

Note: The above table is for illustration purpose only
Source: PersonalFN Research

Some additional parameters to be kept in mind before claiming tax benefit under section 80D:

  1. The mediclaim insurance premiums should be paid in the current financial year to claim tax benefits for it in the same year.
  2. Avoid paying the mediclaim premiums in cash because you'll lose on the tax benefit. Preferably pay it through cheque, credit card, internet banking, etc.
  3. The word "your family" includes-yourself, spouse, and dependent children. The maximum age of dependency for a male unemployed child is 25 years, and a female unemployed child is covered till her marriage. However, if your children (both male and female) are above 18 years of age and are employed, then they aren't considered as "dependents". It does not include your parents.
  4. Your parents may or may not be dependents to claim tax benefit on the health insurance premium that you pay on their behalf.
  5. If you are paying premiums for your "in-laws", however it cannot be claimed as tax benefit under section 80D. On the other hand, if your spouse pays the premiums for his/her parents, then he/she can claim a tax benefit on the premiums paid.
  6. You can claim a tax benefit on mediclaim plans provided by your company too, if you are paying the premiums. However, the total tax benefit under section 80D would be as per the table above.
  7. Preventive health check-up expenses can be claimed as tax deduction upto Rs 5,000. However, it is part of the above deductions and cannot exceed the total deductions allowed under section 80D.

To Conclude...

Remember, there is absolutely no reason to have insufficient mediclaim insurance. The costs you will incur on increasing medical expenses, as inflation continues and as you grow older, can be greatly reduced by the right and optimal insurance policy. And these savings can be channelized towards building a strong mutual fund portfolio that enables you to achieve your life goals faster. So, ensure to choose the right policy, and if you have any questions, on investing and insuring yourself optimally, don't hesitate to reach out to Certified Financial Guardian, who stands as a symbol of Trust and Respect.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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