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Tax Stimulus for Medical Insurance

An Individual Is Allowed Additional Deduction

If He Pays Premium For His Parents

Medical Insurance has becoming increasingly popular in India with the increasing cost of medical treatment and hospitalization expenses. The benefit of having a medical insurance is that by making a small payment of insurance premium, the proposer can cover the cost of medical treatment and hospitalization of himself and his family members in case of need.

Section 80D of the Income-tax Act provides for deduction out of the Gross Total Income of the taxpayer in respect of such medical insurance premium paid. The popular medical insurance policy offered by the General Insurance Corporation of India is the ‘Mediclaim Policy.’ Several private insurance companies recognized by the Insurance Regulatory & Development Authority (IRDA) also offer a variety of medical insurance products, the premium payment of which is eligible for deduction under Section 80D.

Tax Deduction under Section 80D

Section 80D of the Income-tax Act provides that a taxpayer, being an individual or a Hindu Undivided Family (HUF), can claim a deduction within the prescribed limits in respect of medical insurance premium paid by him by cheque out of his income chargeable to tax. It needs to be noted that payment of premium by any mode other than cash is one of the important conditions prescribed under Section 80D. Therefore it must be ensured that such premium is paid either by cheque or card.

Deduction under Section 80D, in the case of an individual is allowed for insurance premium paid to keep in force the insurance on the health of the individual himself or on the health of the spouse (i.e., wife or husband) or dependent children.

In the case of a Hindu Undivided Family, any sum paid to effect or to keep in force insurance on the health of any member of the family is also allowed as a deduction.

Rs.15,000 is the general limit of deduction prescribed u/s. 80D. However, if the individual or his spouse, or any member of the HUF is a senior citizen, such deduction u/s. 80D is allowed within an enhanced limit of Rs.20,000.

Additional Deduction for Premium paid for Parents

In addition to the above deduction of Rs.15,000 in the case of an individual for covering insurance for his own family, he shall be additionally entitled to Rs.15,000 (in all upto Rs.30,000) paid as premium for his parents. In case, any of the parents are senior citizens, the individual will be allowed an additional Rs.20,000 (in all upto Rs.35,000).

A taxpayer in the top bracket of taxable income over Rs.5 lakhs can thus save Rs.10,000 plus by way of income tax, if he plans to cover medical insurance for his family and parents.

It needs to be noted that the earlier condition that the parents must be dependant on the individual has been removed with effect from FY 2008-09.

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