The financial year is drawing to a close, and if you are still scurrying about to save on taxes, here is the harsh truth: you have made a classic financial mistake. Tax planning needs to be incidental to financial planning and you need to adopt a proactive approach to both.
For now, let’s look at your options. Today, we shall focus on health insurance which qualifies for tax deduction under section 80D.
Under section 80D, the premiums paid towards a health insurance policy for self or family can be claimed as a deduction of up to Rs.25,000. If you also pay premiums for your parents who are not senior citizens—less than 60 years of age—then you can claim an additional deduction of Rs.25,000. So the total deduction that you can claim is Rs.50,000, which translates into a tax saving of Rs.15,450.
For senior citizens, the deduction limit is Rs.30,000. But if you are buying a health insurance policy for your parents who are senior citizens then you can claim a deduction up to Rs.55,000—Rs.25,000 for self and Rs.30,000 for parents. Keep in mind that this deduction limit includes expenses incurred towards preventive health check-ups to a maximum of Rs.5,000.
“Premiums will qualify for tax deductions for the financial year in which the policy is issued. For young individuals who don’t need medicals, a health insurance policy can be issued the same day of paying the premium. Even for individuals who require medicals, policy can be issued within 3-4 days,”said Puneet Sahni, head, product development, SBI General Insurance.
Also in the case of very senior citizens who are above 80 years of age and don’t have health insurance, they can claim a deduction up to ?30,000 on expenses incurred on medical expenditure.
WHAT SHOULD YOU DO?
In health insurance what you need is an indemnity policy that will pay for your hospitalisation expenses including pre- and post-hospitalisation costs. According to Kapil Mehta, co-founder, SecureNow Insurance Broker Pvt. Ltd, buying an adequate cover is essential. “When you are in the market for a health insurance policy, keep in mind that medical inflation is about 15-20%. So a heart procedure that costs ?10 lakh today will cost about Rs.40 lakh in 20 years. So whatever you think your health insurance need is today, buy a cover that’s 4 to 5 times that,” he said.
You need to buy adequate health insurance and ensure your plan has the least number of restrictions. “The two most important restrictions are waiting period on pre-existing ailments and room rent capping as it impacts associated medical expenses. Buy a policy with a lower waiting period and no caps on room rents,” he added.
To make health insurance cost-efficient, families could consider floater policies. A floater policy considers the entire family as one unit, so whoever makes a claim the sum insured reduces by that much for the entire family in the year. However, it’s advisable to not include a very elderly person or someone with a pre-existing ailment as it’s not cost-efficient.
You can also buy top-up plans to buy extra insurance at a lower cost. A top-up is a regular indemnity plan that covers hospitalisation costs but only after a threshold— the deductible—is crossed.
Hindustan Times New Delhi,25th March 2017
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