Health insurance tax benefits: A comprehensive guide to availing Sec 80D tax deductions in 2021

Image Credits to Bajaj Allianz General Insurance

2020 will always be remembered as a year when a completely unexpected and unprecedented health crisis gripped the world. Over 112 million people were infected by the Covid-19 virus and almost 2.5 million died. Individuals, governments and even the medical fraternity were scrambling to find ways to cope with the incidence of illness and even fatalities that resulted from the Coronavirus pandemic.

The health crisis triggered an economic crisis in the wake of lockdowns and other restrictions that were necessitated to curtail the spread of the virus. To alleviate the financial burden that could result from the disease, in early March 2020, the Insurance Regulatory and Development Authority of India (IRDAI) mandated that Coronavirus should be covered in Mediclaim policies.

As a result, the costs of admissible medical expenses during the course of treatment of Coronavirus, including the treatment during the quarantine period, are settled according to the applicable terms and conditions of the policy contract and regulatory framework. This is only one of numerous instances in which health insurance could provide financial security with respect to medical expenses.

Financial safety-net when illness strikes

During hospitalisation for a medical emergency, or even a chronic ailment that is being treated, ideally, patients and their care-givers should focus completely on recovery; being able to pay the bills should not be a concern. This is where health insurance plays an important role. It can reimburse or even directly cover (in case of cashless treatment) expenses incurred on hospitalization, medicines, ambulance, doctor’s consultation and more.

Beyond the financial security that such plans provide in the face of illnesses or accidents, health insurance plans offer a range of other advantages. Many insurance companies offer cashless treatment at a range of hospitals that are networked with the insurance company, daily hospital cash that can be used for sundry expenses or the accommodation of a caregiver, cumulative bonuses which can be accumulated to some extent, free health check-ups and life-long renewability, among others.

One of the most appealing features, which is actually unrelated to health and physical wellness, is the tax benefit made available by the Government of India. While this benefit should not the primary motive behind getting a health insurance, it certainly is an icing on the cake.

Tax benefit on health insurance

To encourage people to use health insurance so that they are financially protected when they are most vulnerable, the government offers a tax benefit to individuals and families on premiums paid for health insurance, under Section 80D of the Income Tax Act, 1961. Most pertinently, this deduction is over and above the benefits available in Section 80C, where there is a ceiling of Rs 1.5 lakh.

Individuals can claim a deduction from their total income for medical insurance premium paid in any given year. This applies not only for their own insurance premium or that of their spouse and dependent children, but even on premiums they pay on parents under individual policies or health insurance for senior citizens.

The total amount of deduction available under Section 80D has been increasing over time. In FY 2019-20 and FY 2020-21 an individual taxpayer and members of HUFs can avail the deduction to varying extents depending on their age and the age of their parents. In case an individual and a parent both make part payments towards the premium for the parents, both the individual and the parent can claim a deduction, to the extent paid by each of them, up to the maximum limit. The below mentioned details may vary based on the government rules and regulations:

	Maximum deduction available against premium paid for self + spouse + dependent children (A)	Maximum deduction available against premium paid for policies covering parents (B)	Total Deduction available under Section 80D (A+B)
Individual, his/her family and parents are below 60 years old	Rs 25000	Rs 25000	Rs 50000
Individual and family are below 60 years but parents are 60+ years	Rs 25000	Rs 50000	Rs 75000
Individual and parents are both above 60 years old	Rs 50000	Rs 50000	Rs 100000

To encourage citizens to become more proactive with respect to their health, in 2013-14, the Government has also introduced a deduction from income for preventive health check-ups. These deductions are also included in the overall limits of the deduction available under Section 80D and the individual, his/her spouse and dependent children and parents are eligible.

Making the most of health insurance

If you plan to buy a health insurance plan for all its health as well as tax benefits, you could consider plans from Bajaj Allianz General Insurance, which offers health insurance solutions for all stages of your life. It also offers comprehensive health insurance plans for family that can protect you and your loved ones in case of any medical emergencies. You could choose Health Guard plan by Bajaj Allianz, which is a one-stop solution that offers health insurance for your whole family with maternity cover benefit as well as newborn baby health insurance. The Health Guard - Family Floater Health Insurance plan is a good option if you have dependent parents apart from your spouse and children. For your senior citizen parents, Bajaj Allianz General Insurance has a specially-curated plan called Silver Health Plan which allows entry till the age of 70 years, and also lets you claim extra tax deductions.

There is no doubt that having adequate health insurance is a crucial part of financial planning as it ensures that well-constructed financial plans are not derailed due to an unexpected medical emergency or chronic illness that needs attention. More importantly, having health insurance delivers peace of mind and enables the best treatment possible, based on the policy coverage, without concerns about the financial implications.

The cherry on the cake, however, is the deduction from taxable income that is available on health insurance. Thanks to this deduction, a taxpayer could consider the extent of deduction equivalent to receiving a reduction in premium payable on the health insurance policy, thereby increasing its value even more! Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms and conditions, please read sales brochure/policy wording carefully before concluding a sale.

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