A health insurance plan protects our families from the financial crisis in scenarios of medical contingencies. But it also helps you get tax benefits under Section 80D of the Income Tax Act,1961. You can claim this tax deduction on the premium paid for self, spouse and dependent children and parents. But most are not aware of the fine provisions of the law and make careless mistakes unknowingly. This results in your tax deduction claim being denied while filing your tax returns.
Here, we discuss situations where you are not eligible to reap the benefits of the tax deduction facility.
- Premium payment for a multi-year policy
The financially affluent find it more convenient to purchase a health policy for two to three years at one go and make the premium payment cumulatively. But even though you have made a larger payment and got yourself free of the hassle of paying the premium every year; you are still deprived of the tax deduction benefit. This is because the tax deduction under 80D is valid only for the year in which you have made the premium payment. The government has capped the limit to claim a deduction for a maximum premium amount of Rs. 25000 per year. You do not get any tax benefits for the premium payment beyond this limit.
Moreover, you also lose the tax deduction benefit for the subsequent one or two years, depending on your policy tenure as you are not making any payment in those years.
- Paying the premium in cash
There are various modes of payment available to pay your premium amount of which you also have the cash mode. But this mode is exempted from the tax benefit option under Section 80D. Hence, you must never pay your premium in cash.
However, you can make a cash payment for a preventive health checkup and get the tax deduction benefit.
- Paying the premium for people not in the permitted relationships
You can avail the tax deduction benefit for the premium paid for your spouse, self, children and listed dependents like parents. If you are paying a premium for any other person other than these; you cannot avail of the tax deduction benefit. For those who have members listed under the HUF or the Hindu Undivided Family; tax benefit can be availed for all of the listed members.
- Premium payment for financially independent children
You can only avail of the tax benefit for the dependent children and not for children who have become adults and financially independent. They will be seen as an expense in your financial savings. Thus, the tax deduction claim must be made only for strictly dependent children.
- Failing to renew the policy on time
You can only claim tax benefits on an active policy. While most of the time, Insurance Companies send you a reminder about the renewal of policy or premium payment time; it is not a mandatory obligation for them. For any unforeseen reason; if your policy lapses, then you lose the tax deduction benefit. Hence, you must always be extra cautious about keeping your policy active.
- Not submitting the proof of premium payment
All employed people are asked by their employer to submit their ‘investment declaration’ fir tax purposes. It includes the proposed insurance premium and other qualifying investments. Your declaration data decide your tax liability. But if you are not submitting the proof of your investment including your premium payment receipt; you lose on the tax benefits. It might be noted that it is your responsibility to submit those proofs.
Wrapping up
A health insurance policy not only shields your family against any medical contingencies but is an excellent tax-savings instrument as well. Hence, it is imperative that you become aware of the fine print and do not lose this benefit under any circumstances.
