Financial planning and tax savings are interconnected to each other. Individuals usually look for tax savings when filing their income tax, and Section 80D of the Indian Income Tax serves as an effective approach to save money. Section 80D tax deductions entail medical insurance premiums for self, spouse, dependent children, and parents.
These deductions encourage individuals to secure themselves and their family members against unforeseen medical expenses. You can claim tax deductions under this section if you have already paid health insurance premiums. Specifically, you can claim ₹25,000 for yourself, spouse, and children (if all of them are below 60 years of age).
Overview of Section 80D of the Income Tax Act
Section 80D lets you obtain a tax deduction for the health insurance premiums paid for yourself, your parents, or your family. It also entails the payments for the preventive health check-ups for yourself and your family members. Medical expenses for senior citizens (aged 60 or above) are also included. Note that this concession is applicable to both individuals and Hindu Undivided Families (HUFs).
Deduction Limits
The age of the insured person determines the maximum deduction under this section. Let’s look at the deduction limits:
- ₹25,000 deduction for insurance premiums that are paid for self, spouse, and dependent children.
- ₹50,000 deduction for insurance premiums that are paid for senior citizens (aged above 60 years).
- If the taxpayer and their parents both are senior citizens, the deductions can be up to ₹1,00,000.
The aforementioned limits allow taxpayers to acquire considerable tax savings, chiefly when taking care of senior citizens in the family.
Tips to Maximise Your Tax Savings
Following these tips helps an individual maximise tax savings under 80D:
- It is advisable to buy health insurance while you are young. Typically, your health insurance premiums decrease with your growing age. Hence, you must invest in a healthy life early when you can make the most savings on tax benefits.
- You must be able to choose an appropriate health insurance policy. Look for an insurance policy that covers expenses for hospitalisation, critical illnesses, maternity, wellness benefits, and preventive health checkups.
- It is advisable to invest in the policy for your parents and let their premiums/medical expenses earn you extra tax benefits. The deduction limit increases if your parents are senior citizens.
- Although you don’t have major medical expenses, you can still claim up to ₹5,000 for preventive health check-ups, apart from your own ₹25,000 deduction limit. You must keep this aspect in mind because many individuals get confused or are unaware of the same.
- If you have chosen a family floater plan, then you must be familiar with the amount of premium allotted for each insured member. This understanding can help you get claim deductions more accurately.
- Strategically plan the premium payments. Make sure the premiums for the whole family are paid in the same financial year to maximise the deduction.
- You can get high coverage at low premiums if you invest in top-up or super top-up plans.
- Avoid paying premiums in cash because you can only get tax benefits if you pay via cheque or online.
- You can enhance the overall tax savings by combining 80D with some other tax-saving plans such as ELSS, PPF, or a life insurance policy.
- Tax rules and insurance policies are subject to modifications. To avoid hassles later on, you must stay abreast of payment terms. Periodically review your policy to make sure you keep getting the maximum possible benefits.
- You must maintain the policy details and premium payment receipts for a smooth claim process during tax filing.
Mistakes to Avoid
Section 80D does present an excellent opportunity to save on taxes, but many taxpayers may commit mistakes leading to complications or a reduction in deductions. Here’s a list of common mistakes to stay away from:
i) Being unaware of the deduction limit:
Several taxpayers can’t get deductions since they are unaware of the amount they can claim. So, make sure you are familiar with the 80D tax exemption limit to boost your tax benefits.
ii) Cash payments:
Section 80D only supports deductions for premiums being paid via debit/credit cards, online payment, or cheque. Cash payments are forbidden.
iii) Ignoring preventive health check-ups:
You are eligible to claim up to ₹5,000 for preventive health check-ups. So, make sure you don’t miss this deduction.
iv) Failing to claim for senior citizen parents:
If your parents are senior citizens, you can claim additional deductions, so make sure you don’t miss this opportunity.
Conclusion
A thorough understanding of Section 80D and making the most of its potential can help you save money on taxes. Your taxable income reduces significantly if you claim deductions for health insurance premiums, medical expenses for senior citizens, and preventive check-ups. Keep in mind the deduction limits to avoid future hassles and follow proper steps to file your tax returns.
