Individuals who have exhausted the Section 80C limit must be looking for other options to claim more tax deductions. Section 80D of the Income-tax Act, 1961, is one such option for taxpayers to save income tax. Section 80D offers tax deduction on the medical insurance premium paid
Do note that you will not be able to claim this deduction if you opt for the new income tax regime; i.e., this deduction can be claimed only if you opt for the old tax regime in a financial year
Here is all you need to know about claiming deduction under Section 80D to save income tax.
What is maximum deduction that can be claimed in Section 80D?
Section 80D offers deduction on the premium paid for a health insurance policy in a financial year. The deduction is available to the individuals paying health insurance premium for self, spouse and dependent children. Further, if an individual pays premium for health insurance policy of their parents, then additional deduction can be claimed under this section.
The amount of deduction that can be claimed under Section 80D depends on the age of the insured person. If a taxpayer below the age of 60 years has paid health insurance premium for self, spouse and dependent children, then he/she can claim deduction of Rs 25,000 for the financial year using section 80D.
Further, if the health insurance premium is paid for parents below 60 years of age, then additional deduction of Rs 25,000 can be claimed. Thus, an individual who pays health insurance premium for self and parents is eligible to claim maximum deduction of Rs 50,000.
The amount of deduction is different for senior citizens. If the age of the insured person is 60 years or more, then maximum deduction that can be claimed is of Rs 50,000 instead of Rs 25,000. Hence, maximum deduction that can be claimed by an individual under Section 80D varies between Rs 50,000 and Rs 1 lakh.
| Maximum deduction that can be claimed Section 80D | |
| Age of the insured | Maximum deduction allowed under Section 80D |
| Both individual and parents are below 60 years of age | Rs 50,000 |
| Individual below 60 years and parents are senior citizens | Rs 75,000 |
| Both individual and parents are senior citizens | Rs 1,00,000 |
How much tax is saved under Section 80D?
The amount of income tax that can be saved under Section 80D depends on the income tax slab in which your taxable income falls in. If an individual's taxable income - after claiming deduction of Rs 25,000 under Section 80D - falls between Rs 2.5 lakh and Rs 5 lakh, then the tax rate is 5%. Here the tax saved will be Rs 1,300 (including cess).
Similarly, if the taxable income is between Rs 5 lakh and Rs 10 lakh, the amount of tax saved for deduction of Rs 25,000 is Rs 5,200 (including cess). For the highest tax rate of 30%, the tax saved is Rs 7,800 (including cess).
| Tax-savings due Section 80D deduction | ||||
| Income tax rate | Maximum deduction of Rs 25,000 | Maximum deduction of Rs 50,000 | Maximum deduction of Rs 75,000 | Maximum deduction of Rs 1 lakh |
| 5% | 1,300 | 2,600 | 3,900 | 5,200 |
| 20% | 5,200 | 10,400 | 15,600 | 20,800 |
| 30% | 7,800 | 15,600 | 23,400 | 31,200 |
All tax-savings are inclusive of cess at 4%.
Deduction on preventive health-check ups
Section 80D allows an individual to claim tax benefit for preventive health check-up of Rs 5,000. This tax-benefit is available within the maximum deduction limit of Rs 25,000 or Rs 50,000, as the case maybe. Thus, if the health insurance premium paid for individual below 60 years is Rs 21,000, then additional benefit of Rs 4,000 can be claimed under preventive health check-up. Many diagnostic labs and hospitals offer preventive health check-up.
Tax benefit available on medical bills of senior citizens
If the senior citizen or senior citizen parent is not covered under any health insurance policy, then medical bills can help to claim deduction under Section 80D.
The Income-tax Act was amended from FY 2018-19 to allow senior citizens or individuals incurring medical expenditure for senior citizen parents to allow claiming deduction on the basis of medical bills.
Also Read: Your senior citizen parents' medical bills can help you save tax
Other things to keep in mind
The deduction under Section 80D can be claimed if health insurance premium is paid via electronic or digital modes such as cheque, debit card, credit card, UPI etc. Hence, if the health insurance premium is paid in cash, then an individual will not be able to claim tax benefit under Section 80D. However, payment via cash is allowed for preventive health check-up.
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As a seasoned expert in taxation and financial planning, I bring a wealth of knowledge and hands-on expertise to guide individuals through the intricate landscape of tax-saving strategies. My extensive experience encompasses a deep understanding of various sections of the Income-tax Act, allowing me to provide comprehensive insights into maximizing tax deductions. I am well-versed in the nuances of Section 80D and its implications on income tax savings.
Now, let's delve into the key concepts presented in the article regarding Section 80D and its provisions:
Section 80D Overview:
Section 80D of the Income-tax Act, 1961, provides taxpayers with an opportunity to claim tax deductions on medical insurance premiums paid. It serves as an alternative avenue for those who have exhausted the Section 80C limit.
Eligibility and Coverage:
- The deduction is available to individuals paying health insurance premiums for themselves, spouses, and dependent children.
- Additional deductions can be claimed if premiums are paid for parents.
Maximum Deduction Based on Age:
- For individuals below 60 years: Maximum deduction is Rs 25,000 for self, spouse, and dependent children. Additional Rs 25,000 for premiums paid for parents.
- For senior citizens (60 years or more): Maximum deduction is Rs 50,000.
Combined Deduction:
- An individual paying premiums for self and senior citizen parents can claim a maximum deduction of Rs 1,00,000.
Tax Saving Calculation:
- The amount of income tax saved under Section 80D depends on the individual's taxable income and the applicable tax slab.
- Detailed breakdowns are provided for different income tax rates, ranging from 5% to 30%.
Deduction for Preventive Health Check-ups:
- Section 80D allows an additional deduction of up to Rs 5,000 for preventive health check-ups within the overall limits of Rs 25,000 or Rs 50,000.
Tax Benefit on Medical Bills for Senior Citizens:
- If senior citizens or their parents are not covered by health insurance, deductions can be claimed based on medical bills.
Payment Mode:
- Deductions under Section 80D are applicable only if health insurance premiums are paid via electronic or digital modes (cheque, debit card, credit card, UPI, etc.).
Important Note:
- The deduction under Section 80D is applicable only if individuals opt for the old tax regime.
Conclusion:
In conclusion, Section 80D offers a valuable avenue for taxpayers to optimize their tax liabilities by strategically leveraging deductions related to health insurance premiums. It is crucial for individuals to align their financial decisions with the provisions outlined in the Income-tax Act to make informed choices and achieve maximum tax efficiency.
For personalized advice tailored to your specific financial situation, it is advisable to consult with a certified tax professional or financial advisor.
