Many people are not aware that having health insurance comes with tax benefits. For the uninitiated, the premiums paid towards one’s health insurance policy are eligible for tax deductions under Section 80D of the Income Tax Act. Usually, you can claim the tax deductions for the premiums paid for the policy term when you are filing your ITR or Income Tax Returns for that year. The tax deductions have an upper limit depending upon the age bracket set. If you have a multi-year health insurance policy ,the process of getting tax benefits is slightly different – let’s understand further.
Firstly, let’s explore the upper limits of tax deductions for health insurance.
Premiums paid towards health insurance for individuals under 60 years of age are eligible for a maximum tax deduction of Rs 25,000. If the insured under the health insurance policy is over 60 years of age, then the maximum tax deduction to be availed is Rs 50,000.
Now, in a multi-year health insurance policy, the premiums for the next few years are paid at once in a lump sum. Since the premium is being paid at once, the amount is larger than the usual yearly premiums. In such a case, the law states that the deduction shall be decided proportionately as per the years for which the policy has been undertaken. That is if premiums have been paid for a multi-year health insurance policy term of 4 years, each year’s tax deduction for the four years shall be 25% of the total premium amount.
Let’s take an example. Let’s say you have a multi-year policy of 4 years, for which you paid a premium of Rs 80,000 at once. In the first year of the policy term that coincides with the financial year, you can avail tax deductions of up to Rs 20,000; in the second year, you get tax benefit deductions of Rs 20,000 again and so on until the final year.
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Even though you may have paid an amount that is equal to or more than the maximum tax deduction, you will be eligible for tax deductions based on pro-rata basis only. However, one should not take it as a disadvantage. Rather, you can look at it as a sort of investment where you are paying your premiums at once and getting the returns for the next few years afterwards.
It is also to be borne in mind that the yearly deductions shall be subject to an upper limit. For instance, if the lump sum premium for your 4- year health insurance policy (where all the insured members are under 60 years) is Rs 1,20,000, the maximum deduction you can avail each year would be Rs 25,000 and not more than that. Usually, health insurance companies issue a certificate which will let you know the amount you are eligible for.
Ensure that the payment for health insurance premiums is paid in any medium other than cash. Otherwise, it will not be eligible for tax benefit deductions.
We hope this article has helped you understand the tax benefits of multi-year health insurance.