EXPLORING SECTION 80D – DEDUCTION IN RESPECT OF HEALTH INSURANCE PREMIA

Exploring Section 80D – Deduction in Respect of Health Insurance Premia

The Country has seen over 35Lakh people suffering from COVID-19 till August, 2020 and in light of this, a steep rise has been observed in the number of Mediclaim policy holders in India. In the given situation, Section 80D gains all the more importance. The Government vide this deduction under Chapter VI-A has tried to promote investment in the insurance sectorand to inculcate the habit of insurance among the citizens.Section 80D is a very complexly drafted section and has also seen a lot of amendments in the recent past. It is therefore pivotal to analyse this section in greater detail as we stand at the edge of the frontier of this year’s return filing season.

Section 80D is applicable only to Individuals and HUFs.Deduction is available from the Gross total income that is after adding all the incomes from all heads.

Applicability of deduction :

In case of an Individual, the maximum available deduction (subject to the actual amount expended) will be the aggregate of the following:

  1. If any amount is paid to effect or to keep in force an insurance on the health (herein after referred to as ‘Medical Insurance’) of the assessee, their spouse, dependent children and parent/s:
AgeSelf, Spouse and dependent childrenParent/sTotal
Assessee and parent/s under 60 years of age 25,00025,00050,000
Assessee under 60 years of age and parent/s above 60 years of age25,00050,00075,000
Assessee and parent/s both above 60 years of age50,00050,0001,00,000

2. However, the premium rates vary among the insurers as per the age of the insured. The older the assessee, the heftier the premium. At times, people suffering from chronic illnesses find it very difficult to get themselves insured. With a view to extend the benefit of this section to such uninsured aged persons, the government has provided for deduction of medical expenditure.

Deduction Available for uninsured senior citizens :

Rs. 50,000 for the assessee, their spouse and dependent children collectively and Rs. 50,000 separately for parents. Thus,maximum deduction available for medical expenditure can be Rs. 1,00,000.

However, the maximum amount of deduction available for an assessee in respect of expenditure on self/spouse/dependent children by way of a medical insurance or actual medical expenditure can never exceed Rs. 50,000. Similarly,maximum deduction in respect of the parent/s of the assessee can never exceed Rs. 50,000.

For Example, if a person aged 45 years, pays (through any mode other than cash) during the previous year medical insurance premiumof Rs. 30,000 towards a medical insurance policy on his health and on the health of his wife (Aged 40 years) and dependent children (below the age of 18 years) and pays Rs. 40,000 as medical expenditure for his uninsured father (aged 65 years), the total amount of deduction available to such assessee u/s 80D will be: Rs. 65,000 (being Rs. 25,000 which is the maximum allowable deduction for an individual under 60 years of age + Rs. 40,000 being medical expenditure in respect of senior citizen parent).

Thus, the maximum amount of deduction that an assessee can get under section 80D is Rs. 1,00,000 that is in a situation where both the assessee and his/her parent/s are above 60 years of age and expenditure is incurred either on their medical insurance or medical expenses.

In case of an HUF, maximum deduction allowable if paid by any mode other than cash shall be the aggregate of:

  1. Rs. 25,000 towards medical insurance premium paid for any/all of thefamily members and Rs. 50,000 if the same is paid towards medical insurance premium of a family member who is above 60 years of age
  2. Rs. 50,000 towards Medical Expenditure for any member of family provided the member is a senior citizen and no Mediclaim premium is paid in his/her respect

However, the total amount of deduction u/s 80D available in case of an HUF shall never exceed Rs. 50,000.

All the above amounts discussed in respect of a medical insurance are inclusive of the amount paid for a preventive health check-up upto Rs. 5000 which is allowable even if paid in cash.

For example, where an HUF has paid the following amounts:

  • Rs. 15000/- by cheque for the medical insurance of 2 of its members (aged 30 and 35 years)
  • Rs. 40,000/- by cheque for the medical insurance of a member (aged 63 years) 
  • Rs. 5000/- in cash for preventive health checkup for a member
  • Rs. 10,000/- by check for the medical expenditure for a member (aged 65 years)

In such a situation, the maximum available deduction will be :

Medical insurance of 2 members= 15,000
Medical insurance of 1 senior citizen member= 40,000
Preventive Health check up     = 5,000
Total= 60,000
But Maximum available deduction= 50,000
Medical expenditure of 1 senior citizen member= 10,000
However, maximum deduction available for HUF= 50,000

In a case where lumpsum payment is made for a medical insurance and the benefit will be derived over a number of years, deduction will be split over the life of the policy. It is also pertinent to note that, insurance referred to in this section shall be in accordance with the scheme as prescribed in the Act.

The deduction u/s 80D is available ‘out of his (assessee’s) income chargeable to tax’ as can be seen from the wordings of the section 80D(1). Thus, deduction will be available only when income is chargeable to tax and the said amounts are paid out of such taxable income. Thus, a person declaring income only from exempt sources, is not eligible for this deduction. On the other hand, entire amount will be eligible for deduction to the person who has actually paid the premium where paid for the assessee’s family and parents.

Deduction will also be available to an employee where an employer pays a certain amount towards Mediclaim insurance so as to ensure the life of the employee or his family and/or parents from his/her salary.

In the present covid situation, a huge part of the population has invested in health insurances while another substantial part of the population has shelled out money towards medical expenditure and preventive health check-ups. This makes section 80D more prominent than ever and this is an attempt to simplify the understanding of this intricately drafted section.

Thanks for reading my article on “Exploring Section 80D – Deduction in Respect of Health Insurance Premia

AUTHOR : RADHA HALBE (CLICK HERE TO VIEW PROFILE)

Follow Us on LinkedIn for Job Updates : Click Here to Visit LinkedIn Profile

You can also submit article by sending to taxconcept4@gmail.com