Wednesday, May 31, 2017

Deduction in respect of Medical Insurance Premium [Section 80D]

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1.      Introduction to Section 80D
As per section 80D, an individual or a HUF can claim deduction in respect of the following payments:

1)         Medical insurance premium paid by assessee, being individual/HUF by any mode other than cash.

2)         Any contribution made by assessee, being individual to Central Government Health Scheme or such other Scheme as may be notified by the Central Government.

3)         Sum paid by assessee, being individual on account of preventive health check-up. Medical expenditure incurred by assessee, being individual/HUF on the health of a very senior citizen person provided that no amount has been paid to effect or to keep in force an insurance on the health of such person

2-      Policy to be taken or expenditure to be incurred in whose name?
In case of an individual, deduction is available in respect of medical insurance policy taken in his own name, or in the name his/her spouse, his/her parents and his/her dependent children. In case of HUF, the policy can be taken on the health of any member of such HUF.

Deduction on account of medical expenditure shall be allowed only when it is incurred on the health of the aforementioned persons who are very senior citizens. Very senior citizen’ means an individual resident in India who is of the age of eighty years or more at any time during the relevant previous year.

3-      Amount of deduction
(1)       In case of an individual, amount of deduction cannot exceed:

a.         Rs. 25,000, in aggregate, in respect of medical insurance premium or any payment made for preventive health check-up (*). [This deduction is available if payment is made for benefit of assessee, himself or his/her spouse or dependent children]

b.         Rs. 25,000, in aggregate, in respect of medical insurance premium or any payment made for preventive health check-up (*). [This deduction is available if payment is made for benefit of parents of assessee.]

c.         Rs 25,000 in aggregate in respect of contribution made to the Central Government Health Scheme or any scheme notified by the Central Government [This deduction is available if payment is made for benefit of assessee, himself, his/her spouse or dependent children]

d.         Rs 30,000 in aggregate in respect of medical expenditure incurred on the health of assessee, himself, his/her spouse or dependent children or parents. [This deduction is available if amount is paid for benefit of a very senior citizen and no amount has been paid to effect or to keep in force an insurance on the health of such person.]

(*) total amount of deduction for the expenditure incurred on preventive health check-up of assessee, his family and parents could not exceed Rs. 5,000.

Note: In aforesaid clauses a, b and c additional deduction of Rs 5,000 is available when medical insurance is taken on the life of senior citizen.

4-      Amount of deduction in case of HUF
(2)       In case of a HUF, amount of deduction cannot exceed Rs. 25,000, in aggregate, in respect of premium paid by it on health of any member of such HUF.

The aforesaid limit of Rs. 25,000 will be increased to Rs. 30,000 in following situation:

a)         When the premium is paid in respect of any senior citizen (i.e., any resident individual of the age of 60 years or above).

b)         When medical expenditure is incurred on the health of a very senior citizen person if no amount is paid in respect of health insurance of such person

5-      Mode of Payments
Payment should be made by any mode other than cash (however, payment on account of preventive health check-up can be made in cash).

Illustration
Mr. Raja (age 40 years) has made the following payments during the financial year 2016-17:

1)         Payment of medical insurance premium on his policy of Rs. 15,000.

2)         Payment of medical insurance premium on policy of his spouse Rs. 4,000.

3)         Payment of medical insurance premium on policy of his younger daughter who is dependent on him Rs. 3,000.

4)         Payment of medical insurance premium on policy of his elder daughter who is self employed and not dependent on him Rs. 5,000.

5)         Payment of medical insurance premium on policy of his parents (resident and aged 68 years), Rs. 18,000 on policy of his father and Rs. 18,000 on policy of his mother. Both are dependent on brother of Mr. Raja.

6)         Payment of Rs. 3,000 towards expenditure on preventive health check-up (for his own check-up and check-up of his wife).

Advice Mr. Raja regarding the admissible deduction under section 80D for the year 2016-17.
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Considering the above provisions, the deduction in case of Mr. Raja will be as follows:

1)         Medical insurance premium on his policy of Rs. 15,000 will qualify for deduction.

2)         Medical insurance premium on policy of his spouse of Rs. 4,000 will qualify for
deduction.

3)         Medical insurance premium on policy of Rs. 3,000 of his younger daughter who is dependent on him will qualify for deduction. However, premium of Rs. 5,000 on policy of elder daughter who is not dependent on him will not qualify for deduction.

4)         Medical insurance premium on policy of his parents of Rs. 36,000 will qualify for deduction (being Senior Citizens)-limited to Rs. 30,000.

5)         Expenditure on preventive health check-up will also qualify for deduction, but, it will be restricted to Rs. 3,000 only (as the overall limit of deduction under section 80D in respect of assessee and his family cannot exceed Rs. 25,000).

Thus, total deduction under section 80D will amount to Rs. 22,000 on account of expenditure on premium paid in respect of his own health, health of his spouse and dependent daughter and Rs. 30,000 in respect of premium paid on policy of his parents. Deduction on account of expenditure on preventive health check-up will be Rs. 3,000 Total deduction under section 80D will amount to Rs. 55,000 (Rs. 22,000 + Rs. 30,000 + Rs. 3,000).