Tax Benefits On Payment of Life, Health Insurance Policy, AND Expenses on Medical Treatment

Payment of premium on life, health insurance policy not only gives insurance cover to a taxpayer but also offers certain tax benefits. Let us clear about deductions available to a taxpayer on account of payment of life & health insurance premiums and expenses on medical treatment.

Total income from all the heads of income is called “Gross Total Income” (GTI). To arrive at taxable income, one has to deduct from GTI, the deductions allowable under section 80C to 80U. In other words, we can say that Taxable Income = Gross Total Income less Deductions under section 80C to 80U.

Following general rules should be kept in mind before claiming these deductions under section 80C to 80U:

• No deduction under section 80C to 80U shall be allowed from the income like Capital Gains, Winnings, Some special section (Sec 115).
• The aggregate amount of deduction under section 80C to 80U cannot exceed Gross Total Income excluding incomes as above.

Deduction in respect of Insurance Premium (Sec 80C)

Section 80C provides deduction in respect of various items like insurance premium, PPF, NSC, principal component of home loan, Time Deposit Scheme, NPS, etc. Let us focus on the provisions of section 80C relating to deduction on account of payment of life insurance premium.

Apart from several other items provided under section 80C, a taxpayer, being an individual or a HUF, can claim deduction under section 80C in respect of premium on life insurance policy paid by him/it during the year.

Policy Ownership & Deduction Amount?

An individual can claim deduction in respect of policy taken in the name of taxpayer or his/her spouse or his/her children. In case of a HUF, deduction is available in respect of policy taken in the name of any of the members of the HUF.

Deduction will not be available in respect of premium paid in respect of policy taken in the name of any person, other than given above.

Total deduction amount u/s 80C allowed is up to Rs. 1,50,000.

Restriction on amount of deduction & Holding Period:

Deduction for insurance is restricted to 10% in case of policies issued on or after 1-4-2012. In case of policy taken on or after 1-4-2013 in the name of any person suffering from a disability or severe disability referred to in section 80U or suffering from disease or ailment as given in section 80DDB, the limit will be 15% of capital sum assured.

In case of UTI ULIP, LIC, the minimum holding period is 5 years while in case of Life Insurance, it is 2 years. If the related policy is terminated before the period mentioned then deduction allowed earlier will be converted in the income of the current year.

Deduction in respect of medical insurance premium (Sec. 80D)

As per section 80D, an individual or a HUF can claim a deduction in respect of the following payments:

• The medical insurance premium paid by assessee, being individual/HUF by any mode other than cash.
• Any contribution made by assessee, being individual to Central Government Health Scheme (CGHS) or such other Scheme as may be notified by the Central Government.
• A 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 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.

Ownership of Policy & Allowable Amount?

For individual, deduction is available in respect of medical insurance policy taken in his own name, or in the name his/her spouse, his/her parents and his/her dependent children. In case of HUF, the policy can be taken on the health of any member of such HUF.

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

In case of an individual, amount of deduction cannot exceed:

• Rs. 25,000, in aggregate, in respect of medical insurance premium or any payment made for preventive health check-up if payment is made for benefit of assessee, himself or his/her spouse or dependent children.
• Rs. 25,000, in aggregate, in respect of medical insurance premium or any payment made for preventive health check-up paid for benefit of parents of assessee.
• Rs 50,000 in aggregate in respect of medical expenditure incurred on the health of assessee, himself, his/her spouse or dependent children or parents. (This deduction is available if amount is paid for benefit of a senior citizen and no amount has been paid to effect or to keep in force insurance on the health of such person.)
• Rs. 50,000 in aggregate in respect of medical expenditure incurred on the health of any parent of assessee.
• Amount of preventive health check-ups of assessee, his family and parents could not exceed Rs. 5,000.

In case of HUF

• In case of a HUF, amount of deduction cannot exceed Rs. 25,000, in aggregate, in respect of premium paid by it on health of any member of such HUF.
• The aforesaid limit of Rs. 25,000 will be increased to Rs. 50,000 in case of:

When the premium is paid in respect of any senior citizen.

When medical expenditure is incurred on the health of a senior citizen person if no amount is paid in respect of health insurance of such person

Mode of Payments

Payment should be made by any mode other than cash (however, payment on account of preventive health check-up can be made in cash).

Deduction in respect of expenditure on training/medical treatment of a dependent, being a person with disability (Section 80DD)

A resident individual/HUF, incurring expenditure on maintenance of relative dependent, being a person with a disability, can claim deduction under section 80DD. Deduction is available in respect of any of the following:

• Expenditure incurred on medical treatment (including nursing), training, rehabilitation of a dependent person with a disability.
• Amount paid or deposited under a scheme of LIC or any other insurer or UTI or specified company duly approved by the Board, for maintenance of dependent person with disability.

Dependent person means:

• In case of an individual, it will include spouse, children, parents, brothers and sisters of the individual, or any of them who is mainly or wholly dependent on such individual; and
• In case of a HUF, it will include any member of the HUF, who is mainly or wholly dependent on such HUF.

Provided that such dependent person has not claim any deduction under section 80U.

Amount of deduction

If the taxpayer incurs any expenditure as mentioned for disability, then a flat deduction of Rs. 75,000 is available, irrespective of the amount of such expenditure. However, if the dependent person is suffering from severe disability (i.e., disability of 80% or above), then the amount of deduction will be Rs. 1,25,000.

Deduction in respect of expenditure on medical treatment of specified diseases (Section 80DDB)

As per section 80DDB, a taxpayer can claim deduction in respect of expenditure incurred by him on medical treatment of specified diseases. The provisions in this regard are as follows:

• Deduction under section 80DDB can be claimed by an individual or a HUF, who is resident in India. Deduction is available in respect of amount actually paid by the taxpayer on medical treatment of a specified disease or ailment.
• In case of an individual, the aforesaid expenditure should be incurred on medical treatment of an individual or wholly/mainly dependent spouse, children, parents, brothers and sisters of the individual;
• In case of a HUF, expenditure should be incurred on the medical treatment of any member of the family, who is wholly/mainly dependent on such HUF.

Amount of deduction in Sec. 80DDB

Amount of deduction will be lower of the following:

Amount actually paid on medical treatment specified above; or Rs. 40,000.

However, the limit of Rs. 40,000 will be increased to Rs. 1,00,000, if the expenditure is incurred on medical treatment of a senior citizen.