What is Section 80D of the Income Tax Act - Motilal Oswal

What is Section 80D of the Income Tax Act




There are many provisions in the Indian Income Tax Act that you can use to reduce your total tax liability. One of the most popular sections includes section 80D, which deals with medical insurance premiums. Here’s everything you need to know about section 80D of the Income Tax Act, 1961, and how you can effectively use it to lower your tax. 

What is Section 80D of the Income Tax Act, 1961? 

Section 80D of the Income Tax Act allows you to deduct the premiums you paid toward a medical or health insurance policy from your total taxable income. By lowering your taxable income through this deduction, you can significantly reduce the amount of tax that you pay. 

In addition to allowing you to claim medical or health insurance premiums for yourself, the section also permits you to deduct premiums paid for your family including your spouse, dependent children, and parents. The maximum limit of deduction under this section, however, will vary depending on whether you’re claiming the premiums just for yourself or for your family as well. 

That said, keep in mind that you can only utilize the deduction under section 80D of the Income Tax Act, 1961 if you opt for the old income tax regime. If you opt for the new regime, such deductions would be unavailable. 

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Who Can Claim a Deduction Under Section 80D of the Income Tax Act, 1961? 

Deduction of medical and health insurance premiums under section 80D of the Income Tax Act is available for both individual taxpayers and Hindu Undivided Families (HUFs). 

Even non-resident individuals (NRIs) can claim a deduction under this section. However, if they’re claiming the premiums paid for their senior citizen parents, they can only do so if their parents are resident Indians. If their parents are non-residents, the premiums paid towards their health insurance cannot be claimed by NRIs. 

However, entities such as body corporates, partnership firms, associations, trusts, and bodies of individuals, among others cannot use section 80D of the Income Tax Act to reduce their tax liability. 

What is the Maximum Limit That You Can Claim as a Deduction Under Section 80D of the Income Tax Act, 1961?

Section 80D of the Income Tax Act, 1961 specifies the maximum amount that you can claim as a deduction. The table below should give you a clear understanding of what those limits are. 

Particulars

Maximum Limit 

If you’re under 60 years of age and are claiming only for yourself, your spouse, and dependent children 

Rs. 25,000

If you’re above 60 years of age and are claiming only for yourself, your spouse, and dependent children 

Rs. 50,000

If you’re under 60 years of age and are claiming for both yourself, your spouse, dependent children, and dependent parents who are also under 60 years of age 

Rs. 50,000 

 

(Rs. 25,000 + Rs. 25,000)

If you’re under 60 years of age and are claiming for both yourself, your spouse, dependent children, and dependent parents who are above 60 years of age 

Rs. 75,000

 

(Rs. 25,000 + Rs. 50,000)

If you’re above 60 years of age and are claiming for both yourself, your spouse, dependent children, and dependent parents who are also above 60 years of age 

Rs. 1,00,000

 

(Rs. 50,000 + Rs. 50,000)

Things to Keep in Mind about Section 80D of the Income Tax Act, 1961 

If you’re planning to claim deductions under section 80D, here’s a quick overview of some of the key things that you need to know. 

  • If the medical or health insurance premiums are paid via electronic payment modes. Premiums paid by cash cannot be claimed as a deduction. 
  • Expenses for preventive health check-ups can be claimed under the section even if they are paid for in cash or via digital payment modes. The maximum amount that can be claimed as expenses for preventive health check-ups is restricted to Rs. 5,000. 
  • Medical expenses of senior citizen parents (aged above 60) who don’t have health insurance can also be claimed under this section. 
  • Any contribution that you make towards a Central Government Health Scheme (CGHS) or any other government-backed scheme is also eligible for deduction. 
  • You can also claim the premiums paid towards a single premium health insurance plan covering multiple years. However, your claim would be limited to the amount that you get after dividing the lump sum premium amount by the tenure of the policy. 
  • You cannot claim health insurance premiums paid on behalf of your grandparents, siblings, independent and working children, or other relatives. 
  • You cannot claim group health insurance premiums paid for by the organization you work with. 
  • Rider premiums on health insurance policies can also be claimed as a deduction. 

Conclusion

Section 80D of the Income Tax Act, 1961 along with section 80C are two of the most popular provisions that individual taxpayers use to reduce their overall tax liability. By using section 80D, you can save tax of anywhere from Rs. 1,300 to Rs. 31,200 depending on the tax bracket that you fall under. As you can see, the section can help you save a significant amount of tax, especially if you’re in the higher income tax brackets. 

Alternatively, if you’re looking for other ways to save tax, you can consider investing in tax-saving financial instruments such as the Equity Linked Savings Scheme (ELSS). ELSS is essentially a mutual fund investment scheme with a lock-in period of 3 years. The investment in an ELSS can be claimed under section 80C to the tune of Rs. 1.5 lakhs in a financial year. 

However, since ELSS is a mutual fund, you need to have a demat account to invest in it. If you don’t have one, you can always visit the website of Motilal Oswal to open a demat account and a trading account for free. The application process is seamless and takes only a few minutes to complete. 

 

 

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