5 Situations When You Will Lose Tax Benefits on Health Insurance
Raj was agitated. His company had refused to give him tax benefits on his health insurance policy. Like many people, he also bought the policy to get tax deductions but when his company refused to give it to him, he got furious.
There are many people like Raj who also face the same situation at some point of time. Though health insurance protects you against rising medical expenses, many people still buy it to get tax benefits. However, there are many instances when you can be denied tax benefits on your policy. Let’s discuss them in detail:
- Missed paying premium: You can’t get tax benefits on a lapsed policy. This is one of the main reasons of losing out tax benefits on a health insurance policy. It is commonly found that policyholders wake up to paying health insurance premium when they get a renewal notice from their insurer. However, it is a wrong practice. Usually, insurers send reminders as a matter of courtesy and they can’t be held responsible if they fail to do so. Therefore, it is important to set your own reminders to ensure timely payment of your insurance premium.
- Paying insurance premium for relationships not covered: Over a last few years, many insurance companies have started covering various relationships under their health plans, such as in-laws, grandparents, and siblings. However, under Section 80D of the Income Tax Act, you will be getting tax benefits only in respect of the following relationships:
- Dependent children
- Dependent Parents
Hence, the premium paid for relationships other than the above; do not qualify for tax benefits. For instance, if a senior citizen pays premium for his self-employed son, he’ll get no tax benefits.
- Delay in submitting proof to employer: At the start of the financial year, employees are required to submit investment proofs to get tax benefits. However, if they fail to submit their premium paid certificate, the employer will not consider Section 80D deduction previously given to them on the basis of their investment declaration. In such a scenario, the employer will re-calculate tax and deduct it for the remaining couple of months. Therefore, if you’re buying a health insurance for the first time, make sure to complete all procedures well before January to avoid last minute rush.
- Paying insurance premium for two years: As per Section 80D, you get tax benefits on a payment basis. Let’s understand it with an example. Ravi, a 30-year old IT professional, has bought a 2-year complete health insurance policy. He has paid total Rs 50,000 in the form of premium. However, he will be eligible to get maximum Rs 25,000 as tax benefits in the first year. Though, the insurance is valid for two years, he’ll not be able to claim deduction of Rs 25,000 in the next financial year as he has already paid the premium in advance. Usually, insurers give a certain percentage as discount if you opt for multiple years but before going ahead, you should note that you will not be able to get tax deductions for the future years.
- Paying insurance premium in cash: You are eligible to get tax benefits under Section 80D only if you pay premium through any mode other than cash. Hence, if you pay your insurance premium by cash, you will not get tax benefits.
Health insurance policies serve two purposes. First, it acts as a savior against medical expenses, and second, it is a useful tax instrument. However, it is pertinent to know finer provisions of the law for claiming deductions to ensure that the health insurance premium you pay actually qualifies for tax deductions under Section 80D. So, read your policy documents carefully and talk to your insurer, if required.
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