A guide to claiming tax deductions under Section 80D of Income Tax Act, 1961

The plight of the old and the lonely

With inflation rising at an unprecedented rate of 6 % to 7% annually and unemployment rising, the times of COVID-19 have taught us the importance of having medical insurance cover. But what about the people who cannot afford to have a health insurance cover? We all are aware of how expensive health insurance premiums get as one gets older. This has unfortunately created a situation in India where health insurance does not cover 500 million Indian residents. The problem gets accentuated for senior citizens who constitute 8.5% of the Indian population and whose need for insurance is much greater. However, even the cost of getting one, at a time when most of them have retired. 

This issue got the attention of the Union Budget in 2018, and Section 80D of the Income Tax Act was tweaked and amended to be more sensitive to the elderly and the people who take care of them. 

The 2018 Amendment 

Before 2018, super senior citizens (above the age of 80) were covered for tax deductions under the Income Tax Act, but Senior Citizens (above the age of 60) were not covered. Thus, in 2018 union budget, Section 80D of Income Tax Act was amended to include and provide a safety net for our Senior Citizens as well. The new amendment of the Act increased the limit of tax deductions one could claim against medical expenditures. These tax deductions would decrease the quantum of tax payable to the government. Under the new amendment, the tax deductions claimable were increased from INR 30,000 to INR 50,000 per annum in the case of senior citizens. These tax deductions are claimable either by the senior citizen themselves or their children. 

Tax Benefits enshrined in the Amendment 

The new amendment has proved to be beneficial for both- the group of citizens with an insurance cover as well as the group of citizens who could not afford one. 

For the people already covered under a health insurance scheme, one can claim up to INR 25,000 (in case of a dependent family member) to INR 50,000 (for senior citizens). 

However, even for the family members of senior citizen or senior citizen parents who are not covered by any health insurance, lucrative tax deductions can be claimed, which can effectively go up to Rs.1 lakh for an individual at the maximum end. 

Tax Benefits Claimable under Section 80D of the Income Tax Act, 1961

1. Individuals with No Insurance Cover

(i) For self and family – One can claim up to INR 25,000 tax deduction along with INR 5,000 for preventative health checkups. Thus, this totals up to INR 30,000

(ii) For self, family, and parents

One can claim up to INR 50,000 for tax deduction along with INR 5,000 health checkup exemption. Therefore, the total benefit up to INR 55,000 can be claimed.

(iii) For self, family, and senior citizen parents

The provisions of the Act allow a benefit of INR 75,000 as tax deductions with an INR 5,000 for preventative health checkups in case of Senior citizen parents. Therefore, the total benefit of INR 80,000 is allowable.

(iv) For a senior citizen, family, and senior citizen parents

The Act further allows a tax deduction of INR one lakh and INR 5,000 for regular preventative health checkup exemption growing the deduction amount to INR 1.05 lakh per annum. 

2. Individuals with An Active Insurance Cover

If you pay medical insurance premiums for yourself, your spouse, and your kids, you can claim a maximum tax deduction of INR 25,000 per annum. 

In addition to this, you can claim the benefit of 25,000 for the parent’s health insurance policy. This is for parents under the age of 60 years. 

Under the amended provisions of the Income Tax Act, if you have made a lumpsum premium payment for a policy where the validity exceeds one year, you can claim a tax deduction proportionate to the months, i.e. proportionate deduction is allowed in the next year under section 80D of the Act. 

What’s even more interesting is that one can claim a deduction for his/her parents and spouse even if they are not financially dependent on him/her. However, the same does not apply to independent children. 

Conditions and Limitations of Section 80D Act 

The amendment only applies if the payment is made in any other mode except cash. Essentially, the premium payment must have a bank audit trail and must be made through cheque, DD, NEFT, RTGS, IMPS or even UPI or via online platforms using debit cards. Moreover, tax deductions under Section 80D can only be claimed if the person is above the age of 60 and not already covered by a health scheme. 

One limitation of the Act is the fact that evidence of the medical expenditure has not been stated clearly in the Act. Nevertheless, it is safe to assume that medical bills, invoices, consultation fee, checkup fee etc. can be used to claim the tax deductions. All these must be submitted in originals.

Another limitation might include the fact that preventive health checkups deductions allowed for only up to INR 5,000, while tests in India cost a lot more. 

Conclusion

The government is making efforts to extend its arm to facilitate social healthcare facilities to people of all ages. The smart man would take up these opportunities and save money by claiming from tax deductions and spending it for the health of loved ones. It’s also important to know which health insurance documents will help make the entire process from buying to claiming insurance an easy one. Health Insurance is one such product with dual benefits of tax savings as well as risk cover.