How Much Tax We Can Save With Health Insurance | Tax saving with Health Insurance

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Introduction

The healthcare sector in India is getting increasingly expensive. Technology has given us access to better healthcare, but it has come with a cost. Affording quality healthcare is a concern for many. Hence, health insurance is an absolute necessity. Health insurance not only helps us meet healthcare expenses but also saves taxes. Income tax rules allow us to claim a deduction in our income for insurance premium payments.

But what does a deduction mean in this context? Taxes are a huge part of any working adult’s life. While they help in a nation’s development, taxes are also seen as a liability. Hence, the Government of India has found ways to simplify our tax liability. When a salary is disbursed, we don’t spend it entirely on personal expenses. In reality, there are bills to be paid. For instance, if you live in a rented property, you need to pay the rent every month.

Similarly, if you have an insurance policy, you must pay the insurance provider periodically. So, after meeting the necessary expenses, you are left with a reduced income. In other words, these expenses are deductions that lower our income substantially. The Government has identified certain ‘expenses’ that qualify as deductions reducing our actual income. With reduced income, the tax liability also decreases. Hence, we save on taxes.

Your health insurance premium is part of the Government’s list of acceptable deductions. While you insure your healthcare, you also reduce your tax liability. So is health insurance taxable? What do the terms ‘deductible’ and ‘taxable’ mean?

Read on to know more!

Why Is It Important to Save Taxes?

The Government of India levies taxes on the income earned by individuals, Hindu Undivided Families (HUFs), partnership firms, corporates and LLPs. The tax levied is not one-size-fits-all. Different tax rates apply to different income levels. Certain levels do not attract tax at all. For instance, if your salary is INR 5 lakh and below, you don’t need to pay taxes.

For an income beyond INR 5 lakh, taxes will apply based on the income. Each income level that marks a change in our tax liability is called a tax slab. As we earn more, the tax slab rates change and our tax liability increases. At the same time, expenses and investments take a huge chunk of our income. To help us save on taxes, the Government has introduced tax-saving solutions. Our investments up to a specified limit in certain schemes are considered income-reducing expenses.

For instance, suppose you invest INR 50,000 in a fixed deposit scheme annually. In this case, you can deduct INR 50,000 when declaring your annual income. With decreased income, you would also owe lesser taxes. Hence, ensure that you are not overpaying taxes. Stay on top of the latest tax-saving tools and reap the benefits that come with new investment schemes.

What’s the Difference between ‘Taxable’ and ‘Tax Deductible'?

‘Taxable’ is simply the term used to describe the part of our income against which the tax has to be paid. Each financial year, the Government requires working individuals to declare income. This declaration also includes a bifurcation of our expenses and investments. Our taxable income depends on the tax slab or tax bracket we qualify for.

Pro Tip: As a thumb rule, the higher the income level, the greater our taxable income. A tax deduction, or deductibles, is a way to lower the amount of taxes we have to pay. This is achieved by lowering the amount of taxable income in a person’s books. Various expenses can be subtracted from a person’s taxable income. As pointed out earlier, as our income lowers, so does our tax liability.

So is health insurance taxable or is it a deductible expenditure? In India, health insurance, among other investments, is considered tax deductible. Hence, you can subtract the sum of your health insurance premiums from your annual income. This deduction will lower your income, effectively reducing your taxable income.

Is Health Insurance Taxable?

To answer this, let us first see how health insurance works. A health insurance policy is a contract between an insurance company and an individual. It shifts the responsibility for the individual’s medical expenses to the insurance company.

Hence, certain medical expenses incurred by the insured person will be paid for by the insurance provider. To provide this service, the company collects a fixed amount of money regularly from the policyholder. This sum of money is known as an insurance premium. Now, to put this into perspective, the insurance premium is a form of expenditure. It is a fixed amount of money taken out of a person’s income. Thus, health insurance is not taxable. But, is health insurance tax deductible?

Is Health Insurance Tax Deductible?

Section 80D of the Indian Income Tax Act lists various investments and expenditures that are tax deductible. According to this section, health insurance qualifies as a tax-deducting expenditure.

However, this tax benefit has a limit. We can only claim a deduction of premiums worth up to INR 25,000 annually. Such deductions apply to insurance policies registered in the tax payer’s names and the names of their spouses, and dependent children. However, suppose the taxpayer is also paying for the health insurance of parents. In this case, they can claim deductions of premiums up to INR 50,000 per financial year. If the age of parents is 60 or more, premiums worth up to INR 75,000 are tax-exempted.

Similarly, say the taxpayer, the spouse, and the parents are all more than 60 years of age. In this scenario, premiums up to INR 1,00,000 qualify as deductions. That’s why owning health insurance can prove to be a great tax-saving tool.

Conclusion

Tax saving is a complex concept. Most people take years to understand how taxes work, and even longer to understand how tax saving works. Tax-saving tools like health insurance policies make it a win-win situation for us. We save taxes on the premiums paid and meet our health expenses efficiently.

So, seek expert consultation on understanding the tax structure. And, look out for ways to reduce our tax liability.