How to Use 80D Deductions in Life Insurance for Maximum Benefits?

Life insurance is typically covered under Section 80C of the Income Tax Act. However, when it comes to health-related riders attached to a life insurance policy, such as critical illness cover or hospital cash benefits, you can benefit from deductions under Section 80D. The identification of the possibilities can help optimise tax savings while offering complete financial security. Understand the details of Section 80D and its meeting point with the life insurance plan here.

Understanding Life Insurance

Life insurance is a tool that offers both financial security and income tax benefits. It encompasses periodic payment of premiums up till the death of an individual or till maturity. In case of the death of the insured, the beneficiaries obtain the amount. Hence, life insurance serves as an income replacement option for covering the child’s education costs and building funds for long-term goals. Apart from these, it offers tax benefits as the premiums can be deducted from the income under Sections 80C and 80D of the Income Tax Act, 1961. 

The life insurance plans are of different types:

• Whole life insurance that offers coverage for the entire life of the policyholder
• Term life insurance provides coverage up to a specific duration
• Endowment plan offers both maturity and death benefit
• Unit-linked insurance plan where part of the payment is partially used for insurance and the other part is invested in market-related assets

Understanding Section 80D of the Income Tax Act

Ensuring savings and preventing taxes on investments across a variety of fields, the Income Tax Department provides Section 80. It allows deductions under certain terms for effective financial management. There are multiple sub-types of the section, with Section 80C being the most famous. Few other ones include Section 80CCC, 80D, 80E, 80EE, 80G, 80TTA, and many more.

Section 80D deals with deductions on medical insurance premiums. It allows individuals below 60 years to claim a deduction of up to Rs 25,000, and for senior citizens, this amount increases to INR 50,000. If both the individuals and their parents are senior citizens, the combined maximum deduction can be up to INR 1 lakhs. To maximise tax savings, it’s important to understand how to calculate income tax and claim the 80D deductions to avail maximum benefits. The Section 80D further encompasses:

• Section 80DD - Deduction for medical treatment of a dependent with a disability
• Section 80DDB - Deduction for medical treatment to be claimed on expenses of the treatment of specific diseases

Section 80D Deductions of the Income Tax Act

As mentioned, the Section 80D deductions vary from INR 25,000 to a maximum of up to INR 1 lakh. Incorporate these deductions in the calculation of income tax to avail benefits. The detailed insights to claim the deductions are as follows:

• Up to INR 25,000 on health insurance premiums paid for self, dependent children and spouse
• A separate deduction of INR 25,000 if the premiums are paid for parents’ insurance on the condition that their age should be less than 60 years. For parents aged more than as stated, the deduction is up to INR 50,000.
• If the medical expenses are suffered but uncovered in health insurance, the deduction is possible in the above-mentioned limit of up to INR 50,000
• Maximum deduction of INR 1,00,000 for individuals and parents or spouses if they  possess the insurance and are aged above 60 years
• Up to INR 5,000 on preventive health checkups of the family in a financial year. However, to claim this, the total insurance premium paid must be less than the  maximum allowed limits for any of the categories

When planning deductions, knowing how to calculate income tax ensures you stay within the expenditure limits that offer optimised tax benefits.

Section 80D Deductions Possible in Life Insurance

While Section 80D primarily focuses on health insurance premiums, life insurance policies that include health-related riders can also qualify for deductions. The key deductions that can be opted for include:

Health Riders in Life Insurance: If the life insurance policy comprises health riders or add-ons, the premium paid towards the same or medical expenses can qualify for 80D deductions. The limits will be as mentioned previously.

The premium paid for the following riders can be eligible:

• Critical illness rider covers the costs of treating serious diseases such as cancer, heart attack, or stroke
• Hospital cash rider pays daily cash benefits during hospitalisation.
• Wellness or preventive care rider includes wellness programs or preventive health check-ups.

Premiums Paid for Family Members: Individuals can also claim a deduction on the part of a life insurance premium that covers health benefits for themselves, their parents, spouses, or dependent children.

Senior Citizen Benefits: The health premiums for senior citizens included in the life insurance plan can be considered for 80D deductions. 

Note: Non-cash payments are mandatory to claim 80D deductions.

Multi-Year Health Insurance Premium

Individuals may opt for multi-year health insurance plans followed by up-front payment for all the years. In such a scenario, the 80D deductions are allowed for the individuals. But, the deductions will be limited to the minimum and maximum amounts listed above.

Summing Up

Life insurance offers multiple benefits, including assistance in paying off debts, living expenses, healthcare, education and even death benefits. The premiums paid into the insurance are eligible for tax deductions. While they can be deduced through Section 80C, the health-based part of the premium and riders are eligible for 80D deductions. By understanding how to calculate income tax, one can efficiently claim 80D deductions to minimise their tax burden. Do take a financial expert opinion for guidance on the right route to take for availing tax benefits.

FAQs on 80D Deduction

1. What payment modes are accepted under Section 80D?

For the health insurance premium, all modes of payment are eligible except cash. Concerning preventive health check-ups, modes like debit and credit cards, UPI and cheques are all eligible for deductions.

2. How is Section 80D different from 80C?

The Section 80C provides tax deductions on investments and specific expenses, while 80D offers tax benefits for medical insurance premiums.

3. Do I need to have proof to claim 80D deductions?

The 80D deduction claims do not require proof at the time of filing. However, the employer can request the same when supplying Form 16 or in case of tax scrutiny. Hence, keeping the same is recommended.

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