You know that a health insurance policy can help you save tax as per Section 80D of the Income Tax Act, but do you know, what are those situations when you will lose tax benefits on your policies?
There are certain situations when even after buying a health insurance policy, you will not be able to enjoy tax benefits. Let’s discuss them:
Failure to renew the policy
You will get tax benefits only if the health insurance policy is active. However, most of the policyholders pay insurance premium only when they receive a renewal notice from their health insurer.
But as per the insurance law, insurers send this renewal notice only as a matter of courtesy, and they can’t be held responsible in case they fail to do so. Therefore, it is essential that you remember your policy renewal date and renew it on time. Otherwise, you will lose tax benefits.
Paying premiums for those relationships which are not covered
There are many health insurance companies in India, which allow you to pay health insurance premiums towards relationships, like grandparents, in-laws, siblings, etc. However, these premiums are not eligible for tax benefits.
Under Section 80D, you can get tax deduction only for premiums paid towards any of the following relationships:
For instance, if a senior citizen father pays the premium for a son who is not financially dependent on him, he will not get tax benefits. A better tax planning is when a working son pays Mediclaim insurance premiums for self and parents and get tax benefits on both the premium amount.
Forget to submit insurance proofs
Just buying a health insurance policy is not enough unless you fail to submit investment proofs to your employer. Anytime during January-February each year, your employer may ask you to submit investment proofs, and it is at this time, you should be ready with your premium certificate. In case you fail to submit the certificate, your employer will not give you Section 80D tax benefits and will make tax deductions accordingly.
Note, even if you fail to submit your premium paid certificate by 31st March, you can show it while filing Income Tax Return (ITR). The last date for filing ITR is 31st July.
Paying insurance premiums for more than one year
Nowadays, many health insurance companies offer long-term policies to their policyholders. As per these policies, you can pay insurance premiums for two-year in one go. In return, insurers may lower your premium amount. However, as you pay premiums for two years in one go, you will not get tax benefits in the second year. According to Section 80D, the maximum tax deduction that you can get is Rs 25,000, even if you have paid premium more than that.
For instance, you buy a health insurance and pay a two-year premium of Rs 50,000 in one go. Now, even though you have paid a premium of Rs 50,000, you will get tax benefits up to Rs 25,000 only (which is the upper limit). In this case, though, your health insurance policy will remain active for two years, you will not get tax benefits in the next year as you have not ‘paid’ any insurance premium in that year.
Paying insurance premiums in cash
Though you can pay your premium in cash; no tax benefits are available if you do so. You are eligible for a tax deduction only if you pay your premium in a mode other than cash. Note, cash payment for preventive health check-up is tax-free.
While shielding you against high medical bills, a health insurance policy is also a great tax-saver instrument. However, it is necessary to be aware of all the provisions to use it as a tax-saving weapon. Read your insurance policy document carefully and ask the insurer, if required.