This is how you lose tax benefits on health policies

Buyers should make premium payments through online transfer or cheque payments. Photo: iStock
Buyers should make premium payments through online transfer or cheque payments. Photo: iStock


  • There are some scenarios where you can lose the tax deduction benefits even after following all the I-T rules.

Health insurance policies have become the need of the hour, especially in view of the rise in lifestyle diseases. These policies, which help meet any planned or unforeseen expenditure on hospitalization and medicines, have tax benefits as well. As per section 80D of the income tax (I-T) act, you can avail deductions on payments of up to 50,000 for premium on policies for senior citizens and 25,000 for others in your family in a year. Yet, there are some scenarios where you can still lose the tax deduction benefits even after following all the I-T rules.

No cash payments: Policyholders can claim a tax deduction on their health insurance policies only if they pay premiums through a mode other than cash. “When buying a policy, you should pay the premium either by cheque, or funds transferred via NEFT, IMPS or UPI. You need to use a banking route, whether offline or online, to be eligible to receive tax benefits," said Anup Bansal, chief business officer of Scripbox. Policy buyers should only make premium payments through online transfer or cheque payments or other such modes while buying or renewing their health policies.

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No proof, no benefit: Employees of most organizations have to submit an investment declaration form at the start of the financial year, usually in January and February. They must fill in their investments and insurance premium details in that form. “You need to send investment proofs to your employer via mail or upload them on the employer’s HRMS portal when claiming health insurance tax benefits during the financial year. If you fail to submit or upload such proof, you will lose tax benefits on your policy," said Venkatesh Naidu, CEO of Bajaj Capital Insurance Broking Ltd.

Nevertheless, if you miss out on submitting the proofs, you can still claim a refund when you file an income tax return. However, you need to keep premium payment slips in your records as evidence of policy purchased during the previous financial year.

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Other restrictions: Any payments made for policies taken in the names of people who are not part of your ‘family’ will not be eligible for the tax deduction benefit. For instance, you can only claim the benefit if you pay premium on a policy bought for self, spouse, dependent children and parents. “Any premium that you pay towards health insurance for your financially independent children will only be treated as an expense and will not be eligible for the tax benefits," said Rakesh Goyal, director of Probus Insurance Broker. While several health policies allow the addition of siblings, grandchildren, and even in-laws, you can’t claim tax deduction on the premium paid on their insurance policies.

Multi-year policies: It is crucial to understand the benefits of a multi-year health policy. You can claim the tax deductions benefit proportionately over the policy term if you take separate receipts for each year from the insurer. If not, you can only claim the tax benefit for one year.

Do note that you can get a discount on a multi-year health policy. For instance, instead of purchasing a policy wherein you need to pay 25000 premium every year, you can buy a multi-year health policy that lasts two years. And, instead of paying 50,000 for two years for this policy, you can pay 45,000 in one go. However, the tax benefit in this case will be available for only one year. Under such circumstances, and depending on your tax slab, it is better to seek the advice of a financial planner who can guide you on whether to opt for a discount with a multi-year policy or go with an annual health policy.

Premium receipts: If you don’t take an insurance premium receipt/certificate in your name after paying the premium, you will likely lose your tax benefits. For instance, you will not get tax deduction benefits if you paid the premium for your spouse’s health policy but didn’t take the certificate in your name after paying the premium.

Licensed insurers: The Insurance Regulatory and Development Authority of India (Irdai) runs regular campaigns to create awareness about fraudulent websites selling health insurance policies. If you purchase a policy from an insurer that is not approved by Irdai, you will likely lose tax benefits on the premium paid. Thus, make sure you buy a policy from an authorised insurer only.

Timely renewals: Most health insurance policies have a one-year tenure. If you don’t pay the renewal premium of your policy on time, you will lose tax deduction benefits.

OPD health subscription plans: Buyers should not get confused between OPD health subscription plans and health insurance plans as they cannot claim tax benefits under section 80D for taking OPD-based health subscription plans from several insure-tech firms.

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