Medical emergencies too when they arise, do take a toll on us. Therefore, it is equally important that we medically insure, both ourselves and our near and dear ones. The government actively supports this by allowing you some tax breaks upon taking of such insurance covers - be it a life or a medical cover.
Here are the benefits of life and medical covers and the conditions attached for claiming them.
Tax benefits of a life cover
A life insurance policy taken with any insurer public or private, approved by the Insurance Regulatory and Development Authority of India (IRDAI), insuring life of oneself, spouse and/or children has the following tax benefits :
Deduction under Section 80C
The premium paid on the policy is eligible for a deduction under Section 80C upto a maximum of Rs 1.5 lakhs during any given financial year. Many believe that it is available only on LIC policies, which is not true. Any IRDAI-approved policy can fetch you this deduction - to both individuals as well as a HUFs.
One needs to bear in mind that the deduction under 80C is available provided the premium paid for policies issued after April 01, 2012 does not exceed 10% of the sum assured. In respect of policies taken prior to April 01, 2012, this limit is fixed at 20% of sum assured. Further, the term “sum assured” has been defined in the section as being the minimum amount assured under the policy however excluding premium and bonus payment on the policy.
Exemption of maturity amount under Section 10(10D)
Interestingly, the amount received upon maturity of the policy is fully exempt from tax under Section 10(10D) provided again that the premium paid does not exceed 10% or 20% of sum assured in respect of policies taken after 1 April 2012 and before 1 April respectively.
So, what would be the implications if the premium paid exceeded 10% or 20% of the sum assured. In such cases, the sum assured would be entirely taxed under the head “Income from other sources” and you would have to pay tax on the same based on the rate applicable to the income slab you fall under. In fact, the insurer himself is liable to deduct tax at the rate of 1% in respect of those policies that do not give you the benefit of Section 10(10D),
Tax Benefits of a medical cover
Medical and hospitalisation costs are getting dearer by the day and it would be wise to get oneself and family medically insured. The income tax laws provide a tax deduction under Section 80D of the premium paid towards a medical cover taken for oneself or family (spouse and children) upto Rs 25,000 from the individual’s total income.
Further, if the medical cover has been taken for parents, an additional deduction of Rs 25,000 for premium paid, is available and this limit goes up to Rs 50,000 if the parents are senior citizens.
The recent budget extended the benefit of deduction under 80D even to single premium insurance policies where a taxpayer can claim the premium paid proportionately, across the term of the policy. However,the quantum he can claim will be subject to the overall limit of Rs 25,000 or Rs 50,000 as the case may be. A deduction if respect of preventive health check up upto RS 5,000 is also available but is covered within the limit of Rs 25,000 or Rs 50,000 as the case may be.
The author is Founder & CEO ClearTax. Views expressed are his own.