How to Deduct Rs. 1 Lakh for Health Insurance and Save Taxes Under Section 80D: An Explanation of the Limitations

People often utilize Section 80C to deduct income taxes up to Rs 1.5 lakh, but they seldom think about using Section 80D to deduct health insurance payments from their taxes.

However, taxpayers who choose to use the previous tax system are the only ones who may choose this choice. As of April 2023, the income tax rules have been modified to reflect the new tax structure. In the new tax system, there are just five income tax bands and a higher basic exemption level of Rs 3 lakh.

Let’s examine the breakdown of Section 80D’s deduction caps:

• Up to Rs 25,000 annually for the self, spouse, and dependent children

• Senior citizen parents (60 years of age or older): an extra Rs 25,000 (a total of Rs 50,000).

• Parents under 60: Up to Rs 25,000 annually

Seniors, self-employed people, and paid professionals are all eligible for the tax reduction.

In scenario 1: The person may claim a deduction of Rs 25,000 for the financial year under Section 80 D if they are under 60 and have purchased health insurance for themselves, their spouse, and their dependent children.

In scenario 2, a person may deduct up to Rs 50,000 if their parents, who are over 60, have paid their health insurance premiums. You are eligible to get a tax advantage up to Rs 1,00,000 (Rs 50,000 for each of you and your parents) if you and your parents are both over 60.

In the third case, a Rs 25,000 deduction is possible if the parents’ health insurance premium is paid and they are under 60 years old. Therefore, a person is entitled to a maximum deduction of Rs 50,000 if he is purchasing health insurance for his parents, family, and himself.

What amount of tax savings is possible?
The tax rate is 5% if your taxable income is between Rs 2.5 and Rs 5 lakh after deducting Rs 25,000 under Section D. Under the previous tax system, individuals with taxable income up to Rs 5 lakh were not compelled to pay zero tax because they were entitled to a tax refund under Section 87A.

Similarly, Rs 5,200 is the amount of tax saved for a Rs 25,000 deduction if your taxable income is between Rs 5 lakh and Rs 10 lakh. The tax savings for individuals with a 30% tax rate is Rs 7,800.

HEALTH ANALYSIS
For a preventative health check-up, individuals may also claim a tax credit of Rs 5,000. This may be accessed within the Rs 25,000 or Rs 50,000 maximum deduction limit. Preventive health check-ups allow for the claim of an extra tax credit of Rs 4,000 if the health insurance premium for a person under 60 years of age is Rs 21,000.

However, if a person pays Rs 25,000 health insurance monthly, they are not eligible to get a Rs 5,000 preventative health check-up.

MEDICAL DEBTS
Seniors who do not have health insurance may be able to deduct medical expenses under Section 80D of their taxes.

Remember that the total amount of deductions cannot be more than Rs 50,000.

In 2018–19, the Income Tax Act was modified to enable older persons to deduct medical expenses from their income.

It should be noted that paying for health insurance premiums using a credit or debit card, online, via a UPI, or by check entitles a person to a tax advantage. Under Section 80D, the benefit cannot be claimed by those who paid the premium in cash. Preventive health checkups may be paid for using cash.