Health and life insurance offer much-needed respite during an emergency and help save on taxes and attain financial goals. Due to this dual benefit, they are preferred over regular tax-saving instruments like fixed deposit schemes and the Public Provident Fund. Read on to learn about the available tax deductions and exemptions against these insurance plans.
Medical health insurance is a contract between a policyholder and an insurance company that covers medical expenditures that might occur due to an illness, accident, or injury. It allows individuals and families to cover the high expenses of medical treatment in case an emergency arises. These policies offer coverage for not just hospitalisation but also doctor visits and prescription drugs.
Health insurance policies are also helpful in tax planning and offer financial protection to the family. The premium paid towards a family’s medical insurance is eligible for exemption under Section 80D of the Income Tax Act (ITA).
For insurance for self, partner and dependent children, the maximum tax exemption is Rs 25,000. If your parents are less than 60 years old, then you can get an additional exemption of Rs 25,000.
However, if they are 60 years or older, a tax deduction of Rs 50,000 is available. Further, if the taxpayer and parents are above 60 years old, the exemption amount goes up to Rs 1 lakh.
Notably, you can claim a tax deduction for health insurancepremiums only if you have purchased an insurance policy for yourself, your spouse, or your dependents. Also, tax exemptions won’t be available for the premiums paid in cash.
Life insurance helps you secure the financial future of your loved ones in your absence. They offer a death benefit in case of a policyholder’s unfortunate death that helps a dependent family to fend for itself. Also, a maturity benefit is paid in case of survival of the policy term that aids in living till old age without visible means of support.
Under the Income Tax Act 1961, the Government of India offers various life insurance tax benefits. Applicable to all types of life insurance policies, tax benefits under the following ITA sections allow policyholders to not only provide financial security to themselves and their families but also save on their income tax liabilities:
Under this section of ITA, a tax deduction of Rs 1.5 lakh can be claimed from the net taxable income on premiums paid towards the life insurance policy of self, children, or partner. Also, a term life insurance policy must be kept for at least 2 years in order to get tax benefits under section 80C.
Tax benefits under this section are extended to life insurance policies featuring health benefit riders. An exemption of up to Rs 25,000 per year can be claimed for yourself, your spouse, and your dependent children.
Also, it is to be noted that besides individuals and Hindu Undivided Families (HUFs), no one is eligible to claim tax deductions for life insurance under Section 80D.
Through this section, the act provides a tax exemption on the death or maturity benefit received by you or your family, making life and term insurance an excellent long-term investment. For life insurance plans issued on or after April 1, 2023, tax exemption on maturity benefits will only be applicable if the average annual premium paid is under Rs 5 lakh.
Let’s read on to know why there’s a need to save income tax.
Health and life insurance are excellent investment options that protect you and your family during emergencies and help maximise income through tax deductions and exemptions. If you want to buy health insurance online or buy life insurance online, then post your queries to Digit Insurance.
