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Chapter 8 Section 80D of Income Tax Act

Medical costs have been shooting through the roof in India in the last few years. A casual visit to the hospital for a couple of days can set you back by nearly Rs.30,000 depending on the gravity of your ailment. Complex surgeries run into multiples of lakhs, and there is no way most people can afford funding them through their own resources. The answer lies in medical insurance or health insurance. A health insurance provides you cover against hospitalization expenses and includes costs of tests, room rent, the actual cost of surgery, cost of treatment as well as other medicines and disposables used during hospitalization.

The advantage of buying health insurance is not only that it gives the much needed cover against hospitalization costs but also provides tax benefits under Section 80D of the Income Tax Act. Section 80D is in the form of an exemption, and so, the contribution is deducted from the total taxable income. Therefore, the tax shield that Section 80D provides is equivalent to 31.2% (30% tax + 4% cess) of the contribution. Effectively, if you pay medical insurance premium of Rs.10,000 during the year, your effective cost of the insurance after considering the tax shield will be only Rs.6,880 after adjusting for the 31.2% tax shield.

Section 80D for Mediclaim Premium to Individual, HUF, Senior Citizens

Under Section 80D with respect to Medical Insurance Premium (Mediclaim) paid by an individual either for himself or for a spouse, parents, and dependent children or Hindu Undivided Family (HUF) is available as an exemption from total taxable income. A Mediclaim policy is a must because should you fall sick or meet with an accident, your medical bills could wipe out your savings. Mediclaim premiums can be paid annually. However, insurance companies also offer the facility of paying premium for two years at once. In that case, you can split the tax exemption under Section 80D across two years.

One more thing to remember here is that the benefit of Section 80D is only available when such policies are purchased from IRDA-authorized non-life insurance companies in India. Mediclaim premium benefits are available only when the individual assessee pays out the premium from his/her taxable salary. Therefore, any premiums paid for an employee by the employer will not entitle the employee to claim any tax benefits as the premium is not paid by him/her.

What are the salient features of a health insurance (Mediclaim Policy)

How are premiums of Mediclaim policy determined?

As in term insurance, the premium rates will vary across insurers and will also depend on your age. The older you are, the heftier the premium. That is why, it is always recommended to take health insurance as early as possible. The premium will also wary depending on pre-existing diseases or the vulnerability of the individual to such diseases. It is possible even for people with health problems like hypertension and diabetes to get a Mediclaim health policy, although the premiums will be higher in this case.

Who can claim Deduction Under Section 80D of the Income Tax Act?

Every medical insurance policy has a sponsor who will be the main insured. A sponsor is the one who pays premium for the health insurance policy and the cover is taken on the individual health of family members. Only the person who issues the cheque for the premium can claim the deduction in case of Section 80D.

Health Insurance can be taken by an individual (resident or non resident, Indian Citizen or foreign citizen). In case an individual claims deduction, the medical insurance policy can be taken in the name of any one of the following: the taxpayer or the spouse, parents or dependent children* of the taxpayer. Hindu undivided Family (HUF) may be resident or non resident). In case an HUF claims the deduction, the medical insurance policy can be taken in the name of any member of the family.

Can any family member be covered under the Health Insurance Plan for Section 80D?

There are two parts to the Section 80D benefit under health insurance. First, the benefit is available for an insurance cover for self and family. Family here is defined as your spouse and your minor children, if applicable. Additionally, there is an extra exemption that can be claimed for taking medical insurance in the name of your parents; irrespective of whether they are dependent or not.

The focus is more on dependent children rather than on minor children. Children here include legitimate children and legally adopted children, but do not include illegitimate children. Children above 18 years, if employed, cannot be covered. Male children who are bonafide students can be covered up to age of 25 years, if not employed. Female children, if not employed, can be covered until the time they are married. Parents of an individual can be covered irrespective of whether they are dependent on the assessee or not.

At what age is it possible to take medical insurance [Why caps?]in India?

Medical insurance (health insurance) is available to a person between the ages of 18 and 59 years. However, an existing Policy can be renewed up to the age of 80 years if the person has been continuously paying premiums for a minimum period of 5 years. In some special cases, insurance companies also permit increasing the limit to 90 years with conditional premium stipulations. Normally, any person taking a medical policy after the age of 46 is required to go through a comprehensive medical test before the policy is issued to them. It needs to be noted that this only pertains to the sponsor of the health insurance policy who is claiming tax benefits under Section 80D. It does not pertain to persons covered by the policy.

Who can be covered by medical insurance policy?

Children above the age of three months can be covered, provided parents are covered concurrently and suitable premium is paid. If the child above 18 years is employed or if the girl child is married, he or she shall cease to be covered under the policy. However, a male child can be covered up to the age of 25 years if he is a bona fide regular student and fully dependent on primary insured. Female child can be covered only up to the time of her marriage.

Once the policy is taken, no inclusion of family member during currency of policy is permissible except for a newborn child between the ages of 3 months to 6 months and newly married spouse within 60 days of marriage. Otherwise, inclusion of a family member shall be allowed only at the time of renewal. Prorata premium shall be charged for such additional inclusion during the currency of the policy for the unexpired period.

What is the maximum sum insured permissible?

The minimum sum insured shall be Rs.50,000 and can be increased in multiples of Rs.25,000 up to Rs.5 lakh. The sum insured must be identical for the primary insured and dependents. However, the children may be covered for 50% sum insured. Alternatively, nowadays there are also floaters which come with a comprehensive family cover and the overall limit can be shared by the family members who are named in the policy document.

For the Section 80D benefit, premium must be paid out of taxable income only.

The amount must have been paid using the taxpayer’s income chargeable to tax. It needs to be noted that the Section 80D benefit is in addition to the Section 80C limit of Rs.1.50 lakh. If part payment is done by you and part payment by the parent, both can claim deduction under Section 80D to the extent of their contribution subject to the maximum amount allowed, but the premium should be paid directly to the insurance company through modes other than cash.

If the payment for premium under Section 80D is made by cash, income tax authorities have the right to reverse the tax benefit given to you and add it back to your total income and recalculate the tax accordingly. Any other method of payment of premium that has a banking audit trail is permitted and it includes cheque, demand draft, pay order, NEFT, RTGS, IMPS, debit card [Why caps?]payments, and online payments. Prior to 1st April 2009, premium payment was required to be done only by cheque. Credit card or other online payment mechanisms where not allowed. Now, all payment modes except cash payments are accepted.

Additional features of Mediclaim Policy (Section 80D) to be aware of

The Section 80D benefit is only available to policies that are approved and regulated by the Insurance Regulatory Authority of India (IRDA), which is the central regulatory body for all life and non-life insurance businesses in India. Mediclaim premium paid under the medical insurance scheme of General Insurance Corporation approved by the Central Government or any other insurer approved by the Insurance Regulatory & Development Authority (IRDA) are, therefore, eligible.

The premium is to be paid to keep in force the insurance policy, there is no condition that the assessee should be the proposer of the policy. However, the benefit of Section 80D is only available against the proof of actual premium payment and not on the premium accrued. Thus, documentary proofs (either online or offline) are a must.

How much deduction is available under Section 80D of the Income Tax Act?

  • Basic deduction under Section 80D for Mediclaim premium paid for self, spouse, or dependent children is subject to a maximum deduction Rs.25,000. Here, it is assumed that the principal policy holder is under the age of 60.

  • In case any of the persons specified above is a senior citizen (i.e., 60 years or more) and Mediclaim Insurance premium is paid for such a citizen, deduction amount is Rs.50,000/- from AY2019-20. This amount used to be Rs.30,000 till the AY2018-19.

  • For uninsured super senior citizens (more than 80 years old) & senior citizens (i.e., 60 years or more), medical expenditure incurred up to Rs.50,000 (effective from AY2019-20) will be allowed as a deduction under section 80D.

  • Apart from the premium paid for self and family, there is an additional provision available to insure the health of your parents. This is irrespective of whether your parents are dependent on you[redundant]. Additional deduction under Section 80D: Mediclaim premium paid for parents is available to the tune of Rs.50,000 from AY2019-20.

  • Mediclaim premium paid for any member of the HUF: Maximum deduction under Section 80D Rs.25,000. In case any member of the HUF covered by the Mediclaim policy is a senior citizen, deduction under Section 80D amount is enhanced to Rs.30,000 (it has been increased to Rs.50,000 from AY2019-20).

Illustration 1:

Here is how the specific tax benefits of Section 80D can be captured in the form of a single comprehensive table.

Section 80D Scenarios Benefit of Section 80D for self and family Benefit of Section 80D for parents policy Total benefit under Section 80D
Scenario 1: (The main insured is below 60 and his/her parents are also below the age of 60) Rs.25,000 premium is eligible for deduction Rs.25,000 premium is eligible for deduction Total deduction of Rs.50,000 is available under Section 80D
Scenario 2: (The main insured is below 60 and his/her parents are above the age of 60) Rs.25,000 premium is eligible for deduction Rs.50,000 premium is eligible for deduction Total deduction of Rs.75,000 is available under Section 80D
Scenario 3: (The main insured is below 60 and his/her parents are above the age of 80) Rs.25,000 premium is eligible for deduction Rs.50,000 premium is eligible for deduction Total deduction of Rs.75,000 is available under Section 80D
Scenario 4: (The main insured is above 60 and his/her parents are above the age of 80) Rs.50,000 premium is eligible for deduction Rs.50,000 premium is eligible for deduction Total deduction of Rs.1,00,000 is available under Section 80D

As the above table depicts, Section 80D can proffer a maximum tax exemption of Rs1lakh if the benefits of self and parents are considered in an extreme scenario. The effective tax shield will be 31.2% of the exempted amount in each of the cases.

Let us now look at the nuances of the medical insurance premium payment for tax purposes under Section 80D of the Income Tax Act.

Illustration 2:

Rakesh Mehta (assessee) pays (through any mode other than cash) medical insurance premiums for himself and family during the previous year out of his taxable income as follows:

  • Rs.23,000/- to keep in force an insurance policy on his health and on the health of his wife and dependent children

  • Rs.32,000/- to keep in force an insurance policy on the health of his parents who are 54 and 58 years of age[?]. He has also paid medical insurance premium on behalf of his wife’s uncle to the tune of Rs.9,000. His wife’s uncle is aged 66 years.

Rakesh Mehta will be allowed a deduction of Rs.48,000/- (Rs.23,000/- + Rs.25,000/-) since neither of his parents is a senior citizen.

However, any premium paid on behalf of his wife’s uncle will not entitle Rakesh to any tax benefit under Section 80D, given that this facility is only available in case of a spouse, minor/dependent children, and one’s own parents. Thus, the Rs.9,000 paid as premium by Rajesh on the health insurance of his wife’s uncle will not entitle him to any tax benefit under Section 80D of the Income Tax Act.

Illustration 3:

In Illustration 2, Rajesh Mehta has paid a premium of Rs55,000 for the medical insurance cover of self, family, and parents. Let us assume that his own premium was paid by Pay Order, whereas the medical insurance premium on the health of his parents was paid in cash as it was already the last day. What happens in that case?

In the above case, he would get the full benefit of Rs.23,000 on the medical cover for self and family as the amount was paid by cheque. However, in the case of his parents’ insurance, Rajesh will lose the Section 80D tax benefit since the amount was paid by cash rather than by cheque. Needless to say, the insurance cover on the health of Rakesh’s parents will continue as before. However, the tax deduction on the premium paid on the health of parents will not be available to Rajesh since the payment was made in cash. Section 80D stipulates any mode other than cash and includes cheque/demand draft/pay order/NEFT transfer/RTGS/Debit Card/Credit Card/IMPS/UPI etc.

Illustration 4:

An individual assessee pays health insurance premium through credit card during the previous year as under:

a. Rs.21,000 to keep in force an insurance policy on his health and on the health of his wife and children

b. Rs.40,000 to keep in force an insurance policy on the health of his parents.

While his mother is 58 years of age, his father is 63 years of age. This means that while his father is a senior citizen, his mother is technically not a senior citizen. So, should the person get benefit of senior citizens for his parents or only Rs.25,000 because his mother is not a senior citizen? Under the new provisions, he will be allowed a deduction of Rs.61,000 (Rs.21,000 + Rs.40,000) because one of his parents is a senior citizen, which is good enough to meet this condition. The rule only states that if any of his parents is a senior citizen, he will be allowed a deduction of Rs.50,000 (from AY 2019-20) or the actual premium paid (whichever is lower). Whether the parents are dependent or not is not a consideration for deciding the deduction under Section 80D.

Please note the modified provision to the relevant case with effect from FY2018-19 corresponding to AY2019-20

Under the new provisions, he will be allowed a maximum deduction of Rs.25,000 on his family’s cover and Rs.50,000 on his parents health cover even if one of them is a senior citizen above the age of 60. Union Budget 2018 has virtually scrapped the distinction between a senior citizen and a super senior citizen (above the age of 80) and extended more liberal benefits to both these categories of people. Again, in this case, whether the parents are dependent or not is not a consideration for deciding the deduction under Section 80D.

Illustration 5:

Ms. Sheetal Pawar who is 61 years of age has made the following payments during the FY2018-19 corresponding to AY2019-20:

  • Medical insurance premium on her medical cover policy from New India Assurance of Rs.21,000.

  • Medical insurance premium on policy of her husband Lalit Pawar of Rs.23,000.

  • Medical insurance premium on policy of her 30-year old daughter of Rs.11,000. Sheetal’s daughter is currently employed with an airline company

  • Medical insurance premium on policy of her adopted son of Rs.9,000 per year, who is 16 years old and studying in junior college.

  • Payment of medical insurance premium on policy of her parents (resident and aged 84 and 88 years), Rs.27,000 on policy of father and Rs.25,000 on policy of mother. Both are dependent on Sheetal’s brother as of now.

How much of tax deduction can Sheetal Pawar claim under Section 80D of the Income Tax Act?

What will qualify for deduction (item-wise)?

  • Medical insurance premium on her medical cover policy from New India Assurance of Rs.21,000. (This will qualify for exemption under Section 80D)

  • Medical insurance premium on policy of her husband Lalit Pawar of Rs.23,000. (This will also qualify for exemption under Section 80D)

  • Medical insurance premium on policy of her 30 year old daughter of Rs.11,000. Sheetal’s daughter is currently employed as an Air Hostess with Indigo Airlines. (This will not qualify for exemption under Section 80D as her daughter is an adult and also independent)

  • Medical insurance premium on policy of her adopted son of Rs.9,000 per year who is 16 years old and studying in junior college. (This will qualify for exemption under Section 80D)

  • Payment of medical insurance premium on policy of her parents (resident and aged 84 and 88 years), Rs.27,000 on policy of father and Rs.25,000 on policy of mother. Both are dependent on Sheetal’s brother right now (This will qualify for exemption under Section 80D)

We can now tabulate the situation in the following table as under:

Contribution Exemption U/S 80D for family Exemption U/S 80D for parents Total Exemption for Sheetal Pawar
Premium paid for Self Rs.21,000
Premium paid for husband Rs.23,000
Premium paid for independent daughter Not Eligible
Premium paid for dependent son Rs.9,000
Premium paid for father Rs.27,000
Premium paid for mother Rs.25,000
Total eligible premium Rs.53,000 Rs.52,000
Subject to maximum limit of Rs.50,000 Rs.50,000 Rs.1,00,000

In the above case, since Sheetal is also a senior citizen, she is entitled to a maximum Section 80D benefit up to Rs.50,000 for her family and Rs.50,000 for her parents taking the total benefit to Rs1 lakh.

Medical insurance is a sunk cost and the premium paid is your cost each year. However, considering the rising medical costs and the tax benefits proffered by the Income Tax Act, it surely adds value to tax payers.

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