CA Sandeep Kanoi

CA Sandeep KanoiPlay safe, insure your health and get tax benefit too

Mediclaim insurance is a must-have for all. It safeguards you and your family from a financial crisis during critical illnesses or accidents. Apart from covering medical expenses, health insurance also offers you access to tax saving schemes. Absence of Medical insurance can wipe out your savings.

Deduction U/s. 80D of the Income Tax Act, 1961 in respect of Medical Insurance Premium (Mediclaim) paid, to keep in force insurance by individual either on his own health or on the health of spouse, dependent parents and children or paid by HUF on the health of any members of the family. From A.Y. 2016-17  it also include Medical expenditure incurred by assessee, being individual/HUF on the health of a very senior citizen person provided that no amount has been paid to effect or to keep in force an insurance on the health of such person

Features of Mediclaim policy

1. Premium based on Age: – As in term insurance, the premium rates will vary among the insurers and will also depend on your age. The older you are, the heftier the premium. For instance, Mediclaim policy from General Insurance Corporation has a fixed premium till 35 years and then it changes in 10-year slabs.

2.    Who is it available to?

  • Individual (resident or non resident, Indian Citizen or foreign citizen):- In case an individual is taking the deduction, the medical insurance policy can be taken in the name of any of the following or jointly in the name of following:

– the taxpayer

-spouse of the taxpayer

-parents :- Parents need not be dependent on the Assessee and parents of spouse are also covered.

-Dependent children (i.e. legitimate or legally adopted children) of the taxpayer: – Children above 18 years, if employed, can not be covered. Male children, if not employed, but a bonafide student can be covered upto age of 25 years. Female children, if not employed, can be covered until the time she is married.

  • HUF(Hindu undivided Family may be resident or non resident) :- In case a HUF is taking the deduction, the medical insurance policy can be taken in the name of any member of the family.

Deduction on account of medical expenditure shall be allowed only when it is incurred on the health of the aforementioned persons who are very senior citizens.

Very senior citizen’ means an individual resident in India who is of the age of eighty years or more at any time during the relevant previous year.

3. Entry Age: This insurance is available to a person between the age of 18 to 59 years.  However, the Policy can be renewed upto the age of 80 years.

a) Children above the age of 3 months can be covered provided parents are covered concurrently and suitable premium is paid. If the child above 18 years is employed or if the girl child is married, he or she shall cease to be covered under the policy. However male child can be covered upto the age of 25 years if he is a bonafide regular student and fully dependent on primary insured. Female child can be covered upto the time, she is unmarried.

b) If the insured has taken continuous Mediclaim insurance policy with us for at least 5 years prior to attaining the  age of 80 years the policy can be renewed beyond the age of 80 upto  the age of 90 years as a special case with the approval of Regional Incharge on case to case basis. The premium chargeable shall be 10% of the premium for 75-80 years age slabs for  proposers above 85 and 20% of the premium for 75-80 age slabs for proposers above 90.

c) No inclusion of family member during currency of policy is permissible except for a new born child between the ages of 3 months to 6 months and newly married spouse within 60 days of marriage.  Otherwise inclusion of family member shall be allowed only at the time of renewal. Prorata premium shall be charged for such inclusion during the currency of the policy for the unexpired period.

4. Sum Insured: Minimum sum insured shall be Rs 50,000/- and can be increased in multiples of Rs 25,000/-upto Rs 5 lacs.  The sum insured must be identical for primary insured and the dependents. However, the children may be covered for 50% Sum Insured as per 4 above.

5.     In addition to deduction u/s, 80C, 80CC and 80CCD,:- This is an additional deduction available which do not include deduction  u/s 80C, 80CCC and 80CCD for which overall limit is Rs. 1,50,000.

6. Partly contribution: If part payment is done by you and part payment by the parent, both can claim deduction to the extent of their contribution subject to maximum allowed but amount should be paid directly to insurance company and paid through mode other than by cash.  However wef from A.Y. 2013-14 it is provided that expenses on preventive checkups incurred in cash also eligible for deduction.

7. Payment of Mediclaim Premium out of taxable Income:- The amount must have been paid using the taxpayer’s income chargeable to tax.

8. Mode of payment: The premium may be paid by any mode of payment other than cash. Please note, prior to 1st April 2009, premium payment was required to be done only by cheque. Credit card or other online payment mechanism were not allowed. Now all payment modes except cash payment are accepted. However wef from A.Y. 2013-14 it is provided that expenses on preventive checkups can be incurred in cash too.

9. Which Mediclaim Premium /Payment is allowed? : –

  • Mediclaim premium paid under Medical insurance scheme of General Insurance Corporation approved by the Central Government, or any other insurer approved by the Insurance Regulatory & Development Authority (IRDA)  by any mode other than cash.
  • From A.Y. 2014-15 it is provided that benefit of deduction under section 80D will also be available on contribution towards health schemes of the Central and State Governments, which government notifies from time to time. Read – S. 80D Contribution to Health Schemes – CGHS benefit extended to other similar schemes
  • Sum paid by assessee, being individual on account of preventive health check-up.
  • Medical expenditure incurred by assessee, being individual/HUF on the health of a very senior citizen person provided that no amount has been paid to effect or to keep in force an insurance on the health of such person

10. Things You Must Know Before Buying Health Insurance

  • Buy a basic health insurance plan, which  is an indemnity policy that reimburses all the medical costs incurred during hospitalization.
  • Buying a health insurance policy for you family from the same insurer could entitle you to a discount of up to 10 per cent of your premium.
  • A basic policy pushing up the sum insured by 5 per cent every year that you do not make a claim. If a claim is raised on your policy, the accrued bonus is reduced by 10 per cent till sum insured is reached.
  • You could push up basic policy by adding defined benefit plans.
  • The plans offered by life insurer come with death cover.
  • If you are relying on the medical benefits given by your employer, then during the period between two job, your policy might suffer a break. Buy having medical Insurance plan on your own keep your insured at all times.
  • Buy floater plan to cover entire family
  • Opt for a cashless plan, keep cashless mediclaim cards at hand
  • Ask insurers for premium rates to find the cheapest policy
  • Keep an eye on exclusions and inclusions in the policy
  • Undergo medical tests, if required
  • Buy health insurance even if you have one from your employer.

11.  What is the amount of the deduction?

For Individual

  • Basic deduction: Mediclaim premium paid for Self, Spouse or dependant children. Maximum deduction Rs 15,000 (Rs. 25000/- from A.Y. 2016-17) . In case any of the persons specified above is a senior citizen  and Mediclaim Insurance premium is paid for such senior citizen, deduction amount is enhanced to Rs. 20,000 (Rs. 30,000/- from A.Y. 2016-17).
  • Additional deduction: Mediclaim premium paid for parents. Maximum deduction Rs 15,000 (25,000/- from A.Y. 2016-17). In case any of the parents covered by the Mediclaim policy is a senior citizen, deduction amount is enhanced to Rs. 20,000 (30000 from A.Y. 2016-17). Also Read- Additional deduction U/s 80D for health insurance premium / mediclaim premium paid for parents
  • Please note that with effect from A.Y. 2016-17 deduction under section 80D is eligible on Medical expenditure incurred by assessee, being individual/HUF on the health of a very senior citizen person provided that no amount has been paid to effect or to keep in force an insurance on the health of such person which is subject to overall limit of deduction under section 80D.

Chart Explaining Deduction U/s. 80D:-

For Individuals

DescriptionEligible Expense or Medical Insurance Premium paid in respect ofTotal Deduction under Sec. 80D
Self, Spouse & Dependent ChildrenParents (whether dependent or not)
No-one has attained the age of 60 years
A.Y. 2016-17Rs. 25,000Rs. 25,000Rs. 50,000
A.Y. 2015-16Rs. 15,000Rs. 15,000Rs. 30,000
Assessee and his family is less than 60 years & parents are above 60 years of age
A.Y. 2016-17Rs. 25,000Rs. 30,000Rs. 55,000
A.Y. 2015-16Rs. 15,000Rs. 20,000Rs. 35,000
Assessee and his parents have attained the age of 60 years and above
A.Y. 2016-17Rs. 30,0000Rs. 30,0000Rs. 60,000/-
A.Y. 2015-16Rs. 20,000Rs. 20,000Rs. 40,000

For HUF

Eligible Expense or Medical Insurance Premium paid in respect ofTotal Deduction under Sec. 80D
A.Y. 2016-17A.Y. 2015-16
Any one or more of The Member of HUF is senior CitizenRs. 30,000Rs. 20,000
None of The Member of HUF is senior CitizenRs. 25,000Rs. 15,000

Senior citizen: means who is at least of 60 year of age or more at any time during the previous year.

12.  Deduction for expenditure on preventive health check-up – Expense under this section includes from A.Y. 2013-14  payment made by an assessee on account of preventive health check-up of self, spouse, dependant children or parents(s) during the previous year as eligible for deduction within the overall limits prescribed in the section. However, the proposed deduction on account of expenditure on preventive health check-up (for self, spouse, dependant children and parents) shall not exceed in the aggregate Rs.5,000. For the purpose of the deduction under section 80D, payment can be made – (i) by any mode, including cash, in respect of any sum paid on account of preventive health check-up and (ii) by any mode other than cash, in all other cases.

13. Mediclaim policy for Brother or Sister? In case you need to pay Mediclaim insurance premium for your brother or sister, do not make the premium payment from your account. Take Mediclaim policy for Brother or sister in your Hindu Undivided Family (HUF) Income Tax file. If you are taking a floater policy, then don’t add your brother or sister in the floater policy if you are making the premium payment. Include your brother and sister in the Mediclaim policy where the premium payment is done by the HUF. This will ensure that HUF would be eligible for the deduction under Section 80D.

14. Mediclaim premium for your in-laws. In case you are also taking care of healthcare need of your in-laws, make sure the premium payment for Mediclaim policy is done by your spouse. You will not get any deduction under Section 80D for Mediclaim premium for your in-laws. But if your spouse is making the payment, Section 80D deduction is available since your spouse would be making payment for his / her parents which is allowable under Section 80D. Please note your spouse has to make the payment from his / her taxable income.

15. Service Tax on Medical Insurance Premium – Service Tax also is levied on the amount paid as Insurance Premium. However, the service tax paid on medical insurance premium wont be allowed as a deduction under section 80D. Deduction under section 80D can be only claimed on the amount paid as Medical Insurance Premium and not on the service tax levied thereon.

16 . Conclusion:- Medical Insurance plans serves a dual purpose. They protect you from financial crisis during a health emergency or accident and offer you tax saving benefits as well. This encourages people, especially the salaried class to invest in protecting the future of their family while being able to utilise a maximum percentage of their salaries. You are saved from the burden of paying huge medical bills and income tax, with a health insurance policy in hand.

EXAMPLE- 1

1. An individual assessee pays (through any mode other than cash) during the previous year medical insurance premia, out of his taxable income, as under:

(i) Rs 18,000/- to keep in force an insurance policy on his health and on the health of his wife and dependent children;

(ii) Rs 32,000/- to keep in force an insurance policy on the health of his parents.

He will be allowed a deduction of Rs 38,000/- (Rs. 18,000/- + Rs. 20,000/-) if neither of his parents is a senior citizen. However, if any of his parents is a senior citizen, he will be allowed a deduction of Rs 48,000/- (Rs.18,000/- + Rs.30,000/). Whether the parents are dependent or not, is not a consideration for deciding the deduction under the new provisions.

Further, in the above example, if cost of insurance on the health of the parents is Rs 32,000/-, out of which Rs 17,000/- is paid (by any non-cash mode) by the son and Rs 15,000/- by the father ( who is a senior citizen), out of their respective taxable income, the son will get a deduction of Rs 17,000/- ( in addition to the deduction of Rs 18,000/- for the medical insurance on self and family) and the father will get a deduction of Rs 15,000/-.

EXAMPLE 2

An individual assessee pays through credit card during the previous year health insurance premium as under:

1. Rs. 18,000 to keep in force an insurance policy on his health and on the health of his wife and children 2. Rs. 32,000 to keep in force an insurance policy on the health of his parents.

Under the new provisions, he will be allowed a deduction of Rs. 43,000 (Rs. 18,000 + Rs. 25,000) if neither of his parents is a senior citizen. However, if any of his parents is a senior citizen, he will be allowed a deduction of Rs. 48,000 (Rs. 18,000 + Rs. 30,000). Whether the parents are dependent or not, is not a consideration for deciding the deduction under Section 80D.

EXAMPLE- 3

Question:- Do I need to take medical insurance for both my parents, who are senior citizens. I would appreciate if you can let me know.

Answer:- Deduction in respect of medical insurance premium for A.Y. 2016-17 is Rs 25,000 for an individual and Rs 30,000 for a senior citizen. However if someone were to buy medical insurance for his parent/s, an additional deduction of Rs 25,000 (over and above Rs 25,000) will be available. If such parent/s were senior citizen, the additional deduction would be Rs 30,000. So a person insuring himself, his spouse, children and parents could potentially get a deduction of Rs 50,000.

EXAMPLE-4

Illustration

Mr. Raja (age 40 years) has made the following payments during the financial year 2015- 16:

  • Payment of medical insurance premium on his policy of Rs. 15,000.
  • Payment of medical insurance premium on policy of his spouse Rs. 4,000.
  • Payment of medical insurance premium on policy of his younger daughter who is dependent on him Rs. 3,000.
  • Payment of medical insurance premium on policy of his elder daughter who is self employed and not dependent on him Rs. 5,000.
  • Payment of medical insurance premium on policy of his parents (resident and aged 68 years), Rs. 18,000 on policy of his father and Rs. 18,000 on policy of his mother. Both are dependent on brother of Mr. Raja.
  • Payment of Rs. 3,000 towards expenditure on preventive health check-up (for his own check-up and check-up of his wife).

Advice Mr. Raja regarding the admissible deduction under section 80D for the year 2015- 16.

ANSWER

Considering the above provisions, the deduction in case of Mr. Raja will be as follows:

1) Medical insurance premium on his policy of Rs. 15,000 will qualify for deduction.

2) Medical insurance premium on policy of his spouse of Rs. 4,000 will qualify for

3) Medical insurance premium on policy of Rs. 3,000 of his younger daughter who is dependent on him will qualify for deduction. However, premium of Rs. 5,000 on policy of elder daughter who is not dependent on him will not qualify for deduction.

4) Medical insurance premium on policy of his parents of Rs. 36,000 will qualify for deduction (being Senior Citizens)-limited to Rs. 30,000.

5) Expenditure on preventive health check-up will also qualify for deduction, but, it will be restricted to Rs. 3,000 only (as the overall limit of deduction under section 80D in respect of assessee and his family cannot exceed Rs. 20,000).

Thus, total deduction under section 80D will amount to Rs. 17,000 on account of expenditure on premium paid in respect of his own health, health of his spouse and dependent daughter and Rs. 30,000 in respect of premium paid on policy of his parents. Deduction on account of expenditure on preventive health check-up will be Rs. 3,000 Total deduction under section 80D will amount to Rs. 55,000 (Rs. 22,000 + Rs. 30,000 + Rs. 3,000).

EXAMPLE-5

(i) For Individual and his familyRs.
Health insurance premia21,000
(ii) For parents
Health insurance of Mother :18,000
Medical expenditure on father (very senior citizen)15,000
Deduction eligible u/s 80DRs. 21000 + Rs. 30000

= Rs. 51,000

(REPUBLISHED WITH AMENDMENTS)

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