The insurance company does not credit amount in excess of expenditure incurred towards hospitalisation and medical treatment. As such, the transaction does not amount to income or profit for the insured person, the money received in the bank account is hence not taxable
NEW DELHI: Radhika Agarwal, 50, was diagnosed with a critical illness last year, and fortunately was covered under a critical illness insurance policy. Hence, she received the claim amount as per the health insurance policy. But now she is wondering whether the amount she received is subject to tax
Archit Gupta, Founder and CEO, Clear, said, “Money received through a claim under a medical policy is only the reimbursement of expenses already incurred by the insured. The health insurance company does not credit any amount in excess of expenditure incurred towards hospitalisation and medical treatment. As such a transaction does not amount to income or profit for the insured person, the money received in the bank account is hence not taxable."
Concurring, Aarti Raote, partner, Deloitte India, said currently there is a no provision in the Income Tax Act regarding taxation of health insurance amounts received by an individual as claim settlement. "Insurance companies provide a cashless option to the insured individuals where the hospitalisation expenses are settled directly by the insurance company. Alternatively, suppose the cashless option does not work, in that case, the amount is reimbursed to the insured individual against a claim supported by proof of expenses incurred, including the prescription, hospital invoices, receipts, etc. Thus one may view this as an obligation of the insurance company in the first place, which needs to be paid by it on account of the premiums paid by the individual. These are nothing but reimbursement of personal expenses. There is no benefit derived or income earned by the insured person but a mere reimbursement of the medical costs incurred. Hence the prevalent view is that these should not be treated as taxable in the hands of individual," Raote said.
Also, amount paid as health insurance premium is allowed for deduction under section 80D of the Income Tax Act, provided payment is made by any mode other can cash.
“In case of an individual, ₹25,000 for himself and his family. The limit is Rs50,000 if she is a senior citizen (age more than 60 years). An additional deduction for insurance of either of the parents is available to the extent of Rs25,000 if age less than 60 years and Rs50,000 if parents are senior citizens. For uninsured senior citizens, medical expenditure incurred up to Rs50,000 shall be allowed. A deduction of ₹5000 will be allowed under this section for payment of preventive health check-ups. This deduction is included in the above deduction," said Gupta.