The Income Tax Department of India has maintained a provision of deduction for taxpayers who invest in health insurance policies. As per the current scenario, the IT Department allows a deduction of ₹25, 000 for common citizens and ₹50, 000 for senior citizens in every assessment year. However, there are certain prescribed guidelines that tax payers are required to follow while claiming the aforesaid deductions. Failure to follow the guidelines will automatically disqualify the tax payer from claiming deduction. Here are 5 situations when you could lose tax benefits on your health insurance for deduction under section 80D.
Situation #1 – Multi-year premium on policies
Nowadays, there are numerous multi-year policies that allow people to pay multiple premiums simultaneously. A policy holder has the option of paying multiple premiums in a single year whereby he becomes free from paying premiums every year. However, as per current norms individuals can only claim deduction with respect to a single year’s premium.
So, if your current year’s premium is ₹12,500 and you have paid ₹25,000 (including premium for the upcoming year) then your eligibility to claim deduction under the current period is only ₹12,500 and NOT ₹25,000.
Situation #2 – Paying premium for extended relatives
There is a valid restriction in terms of paying health insurance for relatives. As an individual, tax deduction is only available if a premium is paid for spouse, parents, children or dependents. Any other premium paid of people such as siblings, in-laws, etc., do not qualify for a deduction.
In case the taxpayer is a HUF, then the amount of premium paid towards medical insurance of a HUF member qualifies.
Situation #3 – Lack of payment proof
It is important for tax payers to keep safe a copy of their paid premium. (You don’t need to attach any proof or documents with your Income Tax Return.) Failure to do so will relinquish their opportunity to claim a deduction. Even in offices, employers ask their employees for investment declaration through which investments such as insurance premium, etc., are disclosed for tax purpose. If there is no evidence of payment, then there are no deduction allowed.
You need health insurance proofs only if there is any demand or assessment by IT officer. You don’t need to attach any proof or documents with your Income Tax Return.
Situation #4 – Health policy premium for Financially independent children
There may be a situation where the parent is paying health insurance policy of his/her children who are already financially independent. In such a case, no deduction is allowed. Moreover, the investment will be considered as an expense for the taxpayer. The reason behind this restriction is that financially independent people can invest in their own health insurance policy.
Recommended: Deduction 80D: Complete Detail
Situation #5 – Non-renewal of policy
Health policies are subject to renewal on yearly basis. Failure to do so will disqualify a tax payer to claim deduction under investment in health insurance policy for the years to come. For a tax payer it is important to ensure that the health policy is not discontinued as there are tax benefits on a yearly basis.
Situation #6 – Payment of Preventive Health Check up Over Rs.5000
The maximum deduction for payment on account of preventive health checkup of self, spouse, parent(s) or depended children, in aggregate, shall be Rs. 5,000.
Situation #7 – Payment of Health Insurance Premium in Cash
The payment shall be made out of the assessee’s total income during the previous year. The payment for health insurance shall be made by any mode except cash. However, payment for preventive health check-up may be made by any mode including cash.
Thus, we find that there are numerous situations when you could lose tax benefits on your health insurance. Always keep your health insurance policies active and ensure that you channelize your savings within the permitted scope.