With the healthcare inflation rising at an alarming rate in the country, leading to a hefty rise in healthcare costs, industry experts feel that there is an urgent need for the limit of health insurance tax benefits under Section 80D to be revised. Tax experts and some organisations also expect a change in the provisions of Section 80D due to a practical issue which is being faced by the beneficiaries.
For instance, the Institute of Chartered Accountants of India (ICAI), in its pre-Budget 2018 Memorandum on Direct, International and Indirect Taxes, containing suggestions for the Finance Ministry for consideration while formulating the tax proposals for the Financial Year 2018-19, has said that currently, deduction of mediclaim premium is allowed in the year in which the payment has been made. However, “there are many mediclaim policies available in the market for which a single premium is payable in year one, but the policy cover is for more than one year. These policies are more economical compared to traditional yearly policies. Pro-rata deduction of single premium paid in year one should be allowed over the term of the policy,” ICAI has suggested.
Expert Take on Section 80D Provisions
In the upcoming Union Budget, tax experts expect a change in the provisions of Section 80D due to a practical issue which is being faced by the beneficiaries. You must be thinking that what exactly is Section 80D and what issue are we talking about? No need to worry, here we will address all your questions in detail.
“Section 80D deals with tax deduction on medical insurance. An individual can avail tax deduction on the premium paid for a medical insurance policy for self, family members (spouse, children) and his parents under this section. Premium paid towards health insurance policy not only offers insurance cover to an individual but also puts forward tax benefits,” says CA Abhishek Soni, Founder, tax2win.in.
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This Section offers deduction apart from the more popular Section 80C. The deductions allowed are as follows:
For Yourself & Family
# If you and all the family members are below the age of 60 years, then a maximum deduction of Rs 25,000 per annum.
# If you or any of the family members are above the age of 60 years, then maximum deduction of Rs 30,000 per annum.
For Your Parents
# If your parents are below the age of 60 years, then maximum deduction of Rs 25,000 a year.
# If either of your parents are above the age of 60 years, then maximum deduction of Rs .30,000 a year.
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Additional Deduction (Preventive Health Check up):
A deduction of Rs 5,000 can be claimed every year on expenses related to health check-ups, which is included in the above said limits of Rs 25,000 or 30,000 as the case may be.
Now, let’s talk about the issue being faced in this section. As per the current practice, the deduction of medical insurance premium is allowed in the year in which the payment is being made. However, there are many medical insurance policies existing in the market for which a single premium is payable but the policy cover is for more than one year. These policies are more economical compared to traditional yearly policies so people are more interested in purchasing them.
In such a case, “pro-rata deduction of a single premium paid in a year should be allowed over the term of the policy instead of the single year deduction. E.g., if the premium paid is Rs 75,000 for a 3-year policy, Rs 25,000 should be allowed as deduction each year starting from the year in which the payment has been made. Hence as per the current scenario, the need to incorporate a separate provision for policies having term of more than one year in Section 80D should be understood and upheld in the Budget 2018,” says Soni.
