Tax benefits on health insurance premiums are a crucial way to reduce your income tax liability while securing coverage for medical expenses. However, certain mistakes can result in lost deductions or tax claim rejections.
Read this blog to learn more about some of the most common mistakes which you need to avoid while claiming your health insurance tax benefit.
What are the Mistakes to Avoid While Claiming Health Tax Benefit?
Here are some of the common mistakes which you need to avoid while claiming tax benefits on health insurance:
- Not Knowing the Deduction Limit
A common mistake is not knowing the maximum amount you can claim, which varies depending on your age. The deduction limits under Section 80D vary depending on the type of coverage.
- For Individuals and families under 60, the maximum deduction is Rs. 25,000 for premiums paid for yourself, your spouse, and your dependent children.
- If your family member or you are a senior citizen, the limit increases to Rs. 50,000.
- If you pay the premium for your parents who are senior citizens, you can claim an additional deduction of up to Rs. 50,000, bringing the total deduction to Rs. 1,00,000.
- Paying Premiums in Cash
Health insurance premiums paid in cash are not eligible for a tax deduction under Section 80D. To qualify for this benefit, you must make payments through a digital mode, such as:
- Debit or credit card
- Net banking
- UPI
- Cheque or Draft
The only payment that you can make in cash and still qualify for a deduction is the expense for a preventive health check-up, as long as it is within the overall Section 80D limit.
- Claiming for Ineligible Family Members
You can only claim a deduction for health insurance premiums paid for yourself, your spouse, dependent children, and your parents. You cannot claim the tax benefits for payments made for:
- Working children who are not dependent on you.
- Siblings
- Grandparents
- Extended family or friends
- Forgetting to Claim Preventive Health Check-ups
Many taxpayers miss out on claiming the additional Rs. 5,000 deduction available for health check-ups for themselves and their family members. This falls within the overall limit of Section 80D to claim the health insurance tax benefit. The key aspects are:
- It covers diagnostic tests and medical examinations aimed at detecting illnesses early.
- The amount is part of your overall Section 80D limit.
- Relying Solely on Employer-Provided Insurance
Group health insurance provided by an employer does not qualify for Section 80D deductions, since the company pays the premium. To claim tax benefits, you must purchase your own Comprehensive health insurance or a family floater plan.
- Not Having Proper Payment Proof
The tax department requires proper documentation to verify your claim. You must keep the following documents and submit them when filing your tax return:
- Premium Payment Receipts: Always remember to include the entire premium amount, as some individuals may forget smaller charges.
- Policy Documents: Keep a copy of your policy that covers all the essential details.
- Medical Bills or Invoices: These are essential for claiming the deduction for a preventive health check-up or medical expenses for senior citizens without a policy.
- Not Planning for Multi-Year Policies Correctly
If you pay a lump-sum premium for a multi-year health insurance policy. Then you must make the deduction proportionately over the policy, not all at once, for the health insurance tax benefit. For example, if you pay a Rs. 30,000 premium for a two-year policy, you can claim Rs. 15,000 as a deduction in each of the two years.
- Choosing the New Tax Regime
Medical insurance tax benefits under Section 80D are not available if you opt for the new tax regime. It is because the new regime offers lower tax slabs in exchange for a limited number of deductions and exemptions. To get the benefit from the Section 80D deduction, you must choose to file your taxes under the old tax regime.
- Missing the Total Deduction Potential
Taxpayers sometimes fail to claim the full potential deduction because they do not properly add up all eligible premiums and expenses. Remember that an individual might have separate premiums for:
- Self, spouse, and dependent children
- Parents
- Preventive health check-ups
Final Words
Avoiding these common pitfalls can significantly increase your tax savings and simplify the process of claiming health insurance tax benefits. Instead of scrambling at the last minute, pay your premiums on time and maintain proper records throughout the financial year.
For maximum coverage and tax savings, consider opting for Comprehensive health insurance plans that protect your entire family. Today, it’s easier than ever to Buy Health insurance online, compare policies, and ensure you get both financial protection and tax benefits under Section 80D.
