Insure Your Parents, Save On Your Tax
If both your parents are below 60, you can claim a deduction on premiums up to Rs 25,000 on health insurance
Finding avenues to save tax can be ‘taxing.’ Sometimes it can be misguided too, especially when you start investing simply for the sake of saving on taxes without realising the full implications of such investments. It is immensely satisfying when tax can be saved on worthwhile causes, like your parents’ health.
Health insurance is a vital component of an insurance portfolio and investing in it can save your tax outgo. However, if you insure your parents as well, your tax-saving could be much higher. Unlike some avenues, giving your parents the safety net of medical insurance is not just worthwhile, it is vital. It is advisable to have a health insurance policy aside from the one offered by your employer. Even though these policies can cover your parents as well, their scope is limited. Given the age and medical condition of your parents, you might want to consider a standalone policy for them.
Taxation benefits
Similar to the health insurance policies for you, your spouse, and children, taxation benefits for health insurance for your dependent parents are covered under Section 80D of the Income Tax Act, 1956. Let us see how insuring your parents’ health can bump up your tax saving for a financial year.
If both of your parents are below 60, you can claim a deduction on premiums up to Rs 25,000 on health insurance. Add to this the benefits of deduction on premiums up to Rs 25,000 for health insurance for self, spouse, and dependent children, and your total deduction under the aforesaid section goes up to Rs 50,000 in a financial year.
In case you and your spouse are below 60 but your parents are senior citizens, you can claim a deduction up to Rs 50,000 per year on premium paid on health insurance policies for them. This is over and above the Rs 25,000 that you are allowed as tax benefit on the health insurance for self, spouse, and your children. The reason for this substantial increase in deductible premiums paid is that health policies for senior and very senior citizens see a dramatic rise in premiums. Therefore, insuring senior parents, along with self, can allow you to claim deduction up to Rs 75,000 in a financial year.
The final scenario allows for the largest possible tax benefit under Section 80D. This is when both you and your spouse, as well as dependent parents, are over the age of 60. In such a case, you can save tax on premiums paid up to Rs 50,000 for self and spouse as well as Rs 50,000 for parents. This totals to Rs 1,00,000 tax deduction in a financial year on health insurance premiums paid.
Preventive health checkup
Depending on the health cover you take for your parents, it is possible that the entire limit under Section 80D is not exhausted on insurance premiums. You can utilize the remaining limit by arranging a preventive health checkup for them. As the name suggests, this checkup is done to ascertain the health status of an individual and tackle any emerging diseases.
Under Section 80D, you are allowed to spend Rs 5,000 per year on preventive health checkups. This deduction is included in the overall limit applicable to you and your parents. Thus, if your parents are eligible for a Rs 50,000 deduction on insurance premium in a year but their premium comes to Rs 42,000, you can claim an additional Rs 5,000 by making them undergo such checkups and better utilise the available limit.
Additional provisions
In case your dependent parent/s is/are differently abled, Section 80DD allows you tax exemption on their medical treatment and maintenance. If the disability is between 40 per cent and 80 per cent, the amount of deduction allowed is Rs 75,000 in a year. If the disability is over 80 per cent, the deduction allowed is Rs 1,25,000. If the dependent parents are/are undergoing medical treatment for a specified disease, you can claim tax benefits for such treatment under Section 80DDB.
Buying health insurance has become a necessity in the stress-induced world of today. Doing so for your parents can not only help you save taxes, it can give them a more fulfilling and secure life.
The author is Co-Founder at Turtlemint (an InsurTech Company)
DISCLAIMER: Views expressed are the author's own. Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.