The end of each financial year sends each of us into a tizzy. One all-important question lingers on everyone’s lips: ‘Have I invested in enough tax-saving instruments this year?’ As 31 March approaches, there is a mad rush to save more tax, be it through fixed deposits, pension funds, home loans or life insurance.
The selection of a tax-saving instrument is governed by two factors: (a) the amount of tax that it helps save and (b) the returns that it promises. Based on these two factors alone, the Indian taxpayer has many options from which to choose. Among them stands a relatively underrated tax-saving instrument—health insurance.
Let us look at the question of returns first. When people buy health insurance, it is mainly to protect themselves from potentially sky-high medical bills in the event of hospitalization. Few look at a health plan as a tax-saving tool. This is possibly because the health plan does not build a corpus; it simply pays for your medical expenses, whether by dealing with the hospital directly (cashless plan) or by reimbursing you (reimbursement plan).
Nevertheless, through the simple act of paying your medical bills, health insurance can save you lakhs of rupees. Consider this scenario:
Ten years ago, Mr. Dasgupta purchased a medical insurance cover of Rs. 2 lakhs for his entire family. Back then, costs were low and Rs. 2 lakhs seemed sufficient. Today, Rs. 2 lakhs may be inadequate for even an individual due to the high medical inflation. Hospitalization costs are exorbitant these days, and a single hospital stay can leave you poorer by at least a couple of lakhs of rupees, if not more. This was almost unthinkable a few years ago when the inflation and especially medical inflation wasn't so high. However, with today's day and age, the cost of medicines, hospitalization, bills, etc. have hardly left any option. The good news is a Proper Health Insurance Plan provides you plan for the same and not succumb to the burden!
A good health plan allows you to save those lakhs. It boosts savings, but not directly by building a corpus. Its effect is indirect—it enables you to keep your bank balance and other assets intact during a medical emergency. By covering your medical bills, health insurance ensures that you do not have to dip into your savings. Thus, it allows you to save and grow your other investments even in the face of a medical crisis.
Let us now consider the extent of tax saving made possible by health insurance. Under Section 80D of the Income Tax Act, Indian taxpayers are eligible for considerable tax-saving possibilities when buying health insurance.
- Self, Spouse and Children – When all the individuals covered by a given health plan are below 60 years of age, the policyholder is eligible for a tax benefit of Rs. 15,000 or the total annual premium, whichever is lower.
- Dependent Parents – If the policyholder provides health insurance for his/her parents, an additional benefit of up to Rs. 15,000 is available. If one of the parents is above 60 years of age, the additional benefit increases to Rs. 20,000.
Thus, the policyholder has an opportunity of saving tax to the tune of Rs. 35,000—i.e. Rs. 15,000 (for self, spouse and children) + Rs. 20,000 (for senior citizen parents).
- Preventive health check-ups – Expenses incurred on preventive health check-ups are also eligible for tax benefits up to a maximum of Rs. 5,000. But this amount must be included within the limits mentioned above.
As you can see, health insurance is a great tax-saving tool. Moreover and just as importantly, it secures your family’s access to adequate medical treatment. You need to Plan your Health Insurance effectively in order to get the best benefits!