Tax benefit on Insurance Premium, Mediclaim & Medical Expenses
TG Team
Article discusses about
Deduction in respect of Life Insurance Premium, PPF, NSC, etc. [Section
80C]/ medical insurance premium [Section 80D]/ expenditure on training/
medical treatment of a dependent, being a person with disability
[Section 80DD]/ expenditure on medical treatment of specified diseases
[Section 80DDB], Amount of deduction.
Introduction
Payment of premium on life insurance policy
and health insurance policy not only gives insurance cover to a taxpayer
but also offers certain tax benefits. In this part you can gain
knowledge about deductions available to a taxpayer on account of payment
of life insurance premium, payment of health insurance premium and
expenditure on medical treatment.
Total income from all the heads of income is
called as “Gross Total Income” (GTI). To arrive at taxable income, one
has to deduct from GTI, the deductions allowable under Chapter VIA
(i.e., 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:
1) No deduction under Chapter VI-A (under section 80C to 80U) shall be allowed from the following income:
i) Long-Term Capital Gains.
ii) Short-Term Capital Gains covered under section 111A.
iii) Winnings from lotteries, horse race, etc., referred to in section 115BB.
iv) Income covered under sections 115A, 115AB, 115AC, 115AD, 115BBA and 115D.
2) The aggregate amount of deduction under section 80C to 80U cannot exceed GTI (i.e., GTI excluding incomes referred to above).
The list of deductions under section(s) 80C to
80U is quite long, however, in this part we will gain knowledge on some
major deductions covering deductions available to a taxpayer on account
of payment of life insurance premium, investment in PPF/NSC, payment of
health insurance premium and expenditure on medical treatment.
Deduction in respect of Life Insurance Premium, PPF, NSC, etc. [Section 80C]
Section 80C provides deduction in respect of
various items like life insurance premium, investment in Public
Provident Fund, investment in NSC, repayment of principal component of
housing loan, investment in Post Office Time Deposit Scheme, Senior
Citizens Saving Scheme, etc. We will 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 Hindu Undivided Family
(HUF), can claim deduction under section 80C in respect of premium on
life insurance policy paid by him/it during the year.
Policy to be taken in whose name?
In case of an individual, deduction is
available 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.
No deduction is available in respect of
premium paid in respect of policy taken in the name of any person, other
than given above.
Deduction Allowed
Overall deduction u/s 80C (along with deduction u/s 80CCC & 80CCD) allowed is up to Rs. 1,50,000.
Restriction on amount of deduction with respect to capital sum assured
Deduction is restricted to 20% of capital sum
assured in respect of policies issued on or before 31-3-2012 and 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 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.
Minimum holding period
Following is the minimum holding period in
respect of certain investments, deposits, etc., prescribed above which
should be kept in mind while claiming deduction under section 80C:
| Nature of Investments/Deposits | Minimum Holding Period |
| ULIP of UTI or LIC | 5 years |
| Life insurance policy | 2 years |
| Senior Citizens Saving Scheme and Post Office Time Deposit | 5 years |
If any of the aforesaid investments,
subscriptions, etc., is terminated, sold, etc., before the minimum
holding period specified above, then the deduction allowed in earlier
years would be deemed as income of the previous year of termination,
sale, etc. Further, no deduction will be allowed in respect of
contribution, payment, etc., made towards such policy, units, etc.
(i.e., which is terminated) during the year of termination.
In case of withdrawal during the life time of
depositor from Senior Citizens Savings Scheme or Post Office Time
Deposit before the aforesaid period (i.e., before 5 years), the amount
received on such withdrawal (excluding interest which is already taxed
in earlier years) will be charged to tax in the year of withdrawal.
Illustration
Mr. Raja had made the following payments
during the financial year 2018-19 to avail of the advantage of deduction
under section 80C:
1. Premium paid on his life insurance policy of Rs. 8,400. Policy was taken in April 2011 and sum assured was Rs. 25,000.
2. Premium of Rs. 1,000 on his another life insurance policy. Premium was due in March 2019 but was actually paid in April 2019.
3. Premium of Rs. 30,000 on life insurance
policy taken in the name of his wife. Policy was taken in April 2012 and
sum assured was Rs. 2,00,000.
4. Premium of Rs. 30,000 on life insurance
policies taken in the name of his three children (one is minor daughter,
second is major married daughter and third is major married son, who is
a practicing engineer). The policies are term plans and premium on all
the policies worked out to be 5% of capital sum assured.
5. Premium on life insurance policy taken in
the name of his parents who are dependent on him. Premium paid during
the year amounted to Rs. 25,200.
6. Premium on life insurance policy taken in
the name of parents of his spouse who are dependent on him. Premium paid
during the year amounted to Rs. 2,520.
7. Premium on life insurance policy taken in
the name of his younger brother and sister dependent on him. Premium
paid during the year amounted to Rs. 5,000.
8. Investment in PPF Rs. 60,000.
9. Investment in NSC Rs. 10,000. Interest accrued during the year on NSC amounted to Rs. 1,000.
10. Payment of tuition fees of his minor daughter Rs. 5,000.
11. Repayment of housing loan Rs. 12,000.
12. Investment in post office time deposit Rs. 10,000.
What will be the quantum of deduction under
section 80C for the year 2018-19 which Mr. Raja will be entitled to
claim in respect of above payments?
**
(A) The taxpayer can claim deduction under
section 80C in respect of premium on life insurance policy paid by him
during the year. Deduction is available in respect of policy taken in
the name of taxpayer, his spouse and his children. No deduction is
available in respect of premium paid in respect of policy taken in the
name of any person other than given above. Deduction is restricted to
20% of capital sum assured in respect of policies issued on or before
31-3-2012 and 10% in case of policies issued on or after 1-4-2012.
Considering the above provisions, deduction in respect of life insurance
premium will be as follows:
1) In respect of premium of Rs. 8,400 on his
life insurance policy which is taken in April 2011, deduction will be
restricted to 20% of capital sum assured. Sum assured is Rs. 25,000 and
20% of the same will work out to be Rs. 5,000. Hence, out of Rs. 8,400,
he will be eligible to claim deduction of Rs. 5,000.
2) Deduction under section 80C is available on
payment basis. In respect of premium of Rs. 1,000 on his another policy
(which is due in March), no deduction will be available in current
year, since the premium is not paid in the current year. Premium is paid
in next year and hence, he can claim deduction of Rs. 1,000 in next
year.
3) In respect of premium of Rs. 30,000 on life
insurance policy taken in the name of his wife, deduction will be
restricted to 10% of capital sum assured. Sum assured is Rs. 2,00,000
and 10% of the same will work out to be Rs. 20,000, hence, out of Rs.
30,000, he will be eligible to claim deduction of Rs. 20,000.
4) Premium in respect of policy taken in the
name of his children works out to be 5% of capital sum assured. Hence,
entire amount of premium of Rs. 30,000 will be eligible for deduction.
Further, it should be noted that deduction is allowed for all children
irrespective of the fact whether they are dependent/independent,
major/minor, or married/unmarried.
5) No deduction is available on account of
premium paid in respect of policy taken in the name of any person other
than the taxpayer, his spouse and his children. Hence, no deduction will
be available in respect of premium paid by him on policy taken in the
name of his parents, parents of his spouse and his brother/sister.
6) Total premium eligible for deduction under section 80C will amount to Rs. 55,000 (Rs. 5,000 + Rs. 20,000 + Rs. 30,000).
(B) The taxpayer can claim deduction under
section 80C in respect of any contribution made by him towards statutory
provident fund or recognised provident fund or approved superannuation
fund or public provident fund (PPF). Thus, contribution to PPF of Rs.
60,000 will be eligible for deduction under section 80C.
(C) The taxpayer can claim deduction under
section 80C in respect of amount paid by him towards purchase of NSC.
Hence, he will be able to claim deduction under section 80C in respect
of Rs. 10,000 paid by him towards purchase of NSC.
Accrued interest on NSC is taxed in the hands
of the receiver and the same will be treated as an investment during the
year of accrual (except for last year) and will qualify for deduction
under section 80C. Hence, accrued interest of Rs. 1,000 will be treated
as taxable income and on the same hand will also qualify for deduction
under section 80C.
(D) The taxpayer can claim deduction under
section 80C in respect of amount paid by him during the year towards
tuition fees (excluding development fees, donation or similar payments)
paid at the time of admission or thereafter, to any university, school,
college or other educational institution situated in India, for full
time education of any two children of the taxpayer. Hence, Rs. 5,000
paid by him on account of tuition fees of his minor daughter will
qualify for deduction under section 80C.
(E) The taxpayer can claim deduction under
section 80C in respect of amount paid by him towards repayment of
housing loan. Hence, Rs. 12,000 paid by him on account of repayment of
housing loan will qualify for deduction under section 80C.
(F) The taxpayer can claim deduction under
section 80C in respect of investment made by him in post office time
deposit. Hence, he can claim deduction of Rs. 10,000 under section 80C.
Considering above eligible items given in (A) to (F), the eligible amount of deduction will come to Rs. 1,53,000 (*)
However, total deduction under section 80C
cannot exceed Rs. 1,50,000, hence, deduction will be limited to Rs.
1,50,000. In other words, Mr. Raja can claim deduction of Rs. 1,50,000
under section 80C.
(*) Rs. 55,000 LIP + Rs. 60,000 PPF + Rs.
11,000 NSC +Rs. 5,000 tuition fees + Rs. 12,000 housing loan + Rs.
10,000 time deposits.
Deduction in respect of medical insurance premium [Section 80D]
As per section 80D, an individual or a HUF can claim deduction in respect of the following payments:
1) Medical insurance premium paid by assessee, being individual/HUF by any mode other than cash.
2) Any contribution made by assessee, being
individual to Central Government Health Scheme or such other Scheme as
may be notified by the Central Government.
3) Sum paid by assessee, being individual on account of preventive health check-up.
4) 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
Policy to be taken or expenditure to be incurred in whose name?
In case of an 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.
‘senior citizen’ means an individual resident
in India who is of the age of sixty years or more at any time during the
relevant previous year.
Amount of deduction
(1) In case of an individual, amount of deduction cannot exceed:
a. 25,000, in aggregate, in respect of medical
insurance premium or any payment made for preventive health check-up
(*). [This deduction is available if payment is made for benefit of
assessee, himself or his/her spouse or dependent children]
b. 25,000, in aggregate, in respect of medical
insurance premium or any payment made for preventive health check-up
(*). [This deduction is available if payment is made for benefit of
parents of assessee.]
c. Rs 25,000 in aggregate in respect of
contribution made to the Central Government Health Scheme or any scheme
notified by the Central Government [This deduction is available if
payment is made for benefit of assessee, himself, his/her spouse or
dependent children]
d. 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 an insurance on the health of such
person.]
(*) total amount of deduction for the
expenditure incurred on preventive health check-up of assessee, his
family and parents could not exceed Rs. 5,000.
Note: In aforesaid clauses of a, b and c,
additional deduction of Rs 25,000 is available when medical insurance is
taken on the life of senior citizen.
Amount of deduction in case of HUF
(2) 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 following situation:
a) When the premium is paid in respect of any senior citizen (i.e., any resident individual of the age of 60 years or above).
b) 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).
Illustration
Mr. Raja (age 40 years) has made the following payments during the financial year 201819:
1) Payment of medical insurance premium on his policy of Rs. 15,000.
2) Payment of medical insurance premium on policy of his spouse Rs. 4,000.
3) Payment of medical insurance premium on policy of his younger daughter who is dependent on him Rs. 3,000.
4) Payment of medical insurance premium on policy of his elder daughter who is self employed and not dependent on him Rs. 5,000.
5) Payment of medical insurance premium on
policy of his parents (resident and aged 68 years), Rs. 18,000 on policy
of his father and Rs. 18,000 on policy of his mother. Both are
dependent on brother of Mr. Raja.
6) Payment of Rs. 3,000 towards expenditure on preventive health check-up (for his own check-up and check-up of his wife).
Advice Mr. Raja regarding the admissible deduction under section 80D for the year 201617.
**
Considering the above provisions, the deduction in case of Mr. Raja will be as follows:
1) Medical insurance premium on his policy of Rs. 15,000 will qualify for deduction.
2) Medical insurance premium on policy of his spouse of Rs. 4,000 will qualify for deduction.
3) Medical insurance premium on policy of Rs.
3,000 of his younger daughter who is dependent on him will qualify for
deduction. However, premium of Rs. 5,000 on policy of elder daughter who
is not dependent on him will not qualify for deduction.
4) Medical insurance premium on policy of his parents of Rs. 36,000 will qualify for deduction (being Senior Citizens).
5) Expenditure on preventive health check-up
will also qualify for deduction, but, it will be restricted to Rs. 3,000
only (as the overall limit of deduction under section 80D in respect of
assessee and his family cannot exceed Rs. 25,000).
Thus, total deduction under section 80D will
amount to Rs. 22,000 on account of expenditure on premium paid in
respect of his own health, health of his spouse and dependent daughter
and Rs. 36,000 in respect of premium paid on policy of his parents.
Deduction on account of expenditure on preventive health check-up will
be Rs. 3,000 Total deduction under section 80D will amount to Rs. 61,000
(Rs. 22,000 + Rs. 36,000 + Rs. 3,000).
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
disability, can claim deduction under section 80DD. Deduction is
available in respect of any of the following:
(a) Expenditure incurred on medical treatment
(including nursing), training, rehabilitation of a dependent person with
disability.
(b) 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 with disability means:
1) 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
2) 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.
Disability Means:-
Such person is suffering from a specified
disability which generally includes blindness, low vision,
leprosy-cured, hearing impairment, locomotor’s disability, mental
retardation and mental illness [see section 2(i) of the Person with
Disabilities (Equal Opportunities, Protection of Rights and Full
Participation) Act, 1995 ], it will also include “autism”,
“cerebral palsy”, and “multiple disability”,
referred to in clauses (a), (c) and (h) of section 2 of National Trust
for welfare of Person with Autism, Cerebral Palsy, Mental Retardation
and Multiple Disabilities Act, 1999.
Person with severe disability means:-
1. A person with 80% or more of one or more
disabilities, as referred to in section 56(4) of the Persons with
Disabilities (Equal Opportunities, Protection of Rights and Full
Participation) Act, 1995 (1 of 1996); or
2. A person with severe disability referred to
in clause (o) of section 2 of the National Trust for Welfare of Persons
with Autism, Cerebral Palsy, Mental Retardation and Multiple
Disabilities Act, 1999 (44 of 1999).
Amount of deduction
If the taxpayer incurs any expenditure as
mentioned in (a) or (b) above, 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.
Other points to be kept in mind
Following important points should be kept in mind while claiming deduction under section 80DD:
1. The taxpayer should obtain a copy of
certificate (Form No. 10-IA) issued by the medical authority (fresh
certificate is required in case of reassessment of disability after the
expiry of the period mentioned in original certificate).
2. If the dependent predeceases the taxpayer
or the member of HUF referred to above, then amount paid or deposited in
(b) above, shall be charged to tax in the hands of the taxpayer for the
previous year in which such sum is received.
Illustration
Brother of Mr. Raja (a resident) is totally
blind and is dependent on Mr. Raja. During the year 2018-19, Mr. Raja
has incurred expenditure of Rs. 10,000 on training and rehabilitation of
his brother. Can Mr. Raja claim any deduction in respect of expenditure
incurred by him on maintenance of his physically handicapped brother?
**
In this case, all the criteria of section 80DD
are satisfied and hence, Mr. Raja can claim a flat deduction of Rs.
1,25,000 under section 80DD (since his brother is suffering from 100%
disability).
Suppose in the above case, instead of 100%
disability, his brother is suffering from disability of less than 80%,
then the amount of deduction will be limited to Rs. 75,000.
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:
1) Deduction under section 80DDB can be claimed by an individual or a HUF, who is resident in India.
2) Deduction is available in respect of amount
actually paid by the taxpayer on medical treatment of specified disease
or ailment (prescribed by the Board, see rule 11DD for prescribed
disease or ailment).
3) 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; and
4) 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.
The tax payer has to obtain the prescription
for the medical treatment from a neurologist, an oncologist, a
urologist, a haematologist, an immunologist or such other specialist, as
may be prescribed.
Amount of deduction
Amount of deduction will be lower of the following:
(a) amount actually paid on medical treatment specified above; or
(b) 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 (i.e., any resident individual of age of
60 years or above.
Other points to be kept in mind
Following important points should be kept in mind while claiming deduction under section 80DDB:
1. The taxpayer should obtain a copy of
certificate (Form No. 10-I) issued by a neurologist, an oncologist, a
urologist, a haematologist, an immunologist or such other specialist, as
may be prescribed, working in a Government hospital.
2. From the amount of deduction computed in
aforesaid manner, amount, if any, received by the taxpayer from any
insurer or from his employer, by way of reimbursement for such
expenditure shall be deducted.
Illustration
During the financial year 2018-19, Mr. Raja
spent Rs. 1,00,000 on medical treatment of specified diseases of his
brother (age 48 years) who is wholly dependent on him. He received Rs.
25,000 by way of reimbursement of such expenditure from a medical
insurance policy. Can he claim any deduction in respect of expenditure
incurred by him on medical treatment of specified diseases?
**
In this case, all the conditions of section
80DDB are satisfied and hence, Mr. Raja can claim deduction under
section 80DDB. Deduction under section 80DDB will come to Rs. 15,000
(i.e., Rs. 40,000 maximum limit of deduction – Rs. 25,000 reimbursement
from a medical insurance policy). If his brother is a senior citizen
(i.e. resident and of the age of 60 years of above), then the amount of
deduction will be Rs. 75,000 (i.e., Rs. 1,00,000 maximum limit of
deduction – Rs. 25,000 reimbursement).
Suppose, in above cases, the amount received from insurance policy is Rs. 65,000 instead of Rs.25, 000, then:
In First situation, the amount of deduction
will be nil, since the amount of reimbursement exceeds the maximum
amount of deduction i.e., Rs. 40,000.
In Second situation, the amount of deduction
will be Rs. 35,000 (i.e., Rs. 1,00,000 maximum amount of deduction minus
Rs. 65,000 reimbursement)
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