Health Insurance Tax Benefits for Salaried Employees – What You Need to Know

Posted on: Aug 23, 2022 | 3 Min | Written by: HDFC ERGO Team

Health Insurance Tax Benefits for Salaried Employees – What You Need to Know

Healthcare costs are at an all-time high in India, which means you cannot avail top quality treatment without burning a hole in your pocket in case of a major, hospitalisation. But all said and done, do note that health insurance plans can make things easy for you by shouldering the financial burden, as long as you pay the premium on time. Now, if you are a salaried person, you can either buy insurance on your own or enjoy the one your employer gives you. But who gets to avail the tax benefits in the second scenario? Well, that is what this blog will explain, so that you can make an informed choice when it comes to buying health insurance.

Self-Purchased vs Employer-Provided Health Insurance

There are two common ways in which you can get health insurance. You can either get health insurance on your own or from your employer as a part of the group health insurance package. Self-purchased health insurance is one that you buy directly from an insurance company. You pay the policy premium from your own pocket. It is a one-to-one relation between you, the policyholder, and the insurance company. The insurance cover stays with you no matter where you work. On the other hand, you can stick with the health insurance plan you get from your company. Generally, the employer buys a group health insurance plan from the insurance company and adds their employees to the policy. It is up to the employer to pay the employee insurance premium from their account in full or make it a part payment shared between the employer and employees. The obvious limitation is that it only remains available to you as long as you are employed with that specific company. If you are no longer employed with the company, you will not be covered.

Pro tip:

Even if you are getting health insurance cover from your employer, you should have at least a basic health insurance policy that you have directly purchased from an insurer. This way, if something happens to your job or company, you won’t be left high and dry.

Can Employers Offer Different Cover Levels to Different Employees?

This is a very common question that a lot of people tend to get confused about. And yes, an employer can offer different levels of health insurance cover to different employees based upon their seniority and earning level. Here is how most large companies tend to do offer different cover levels.

All junior employees can be clubbed in one group health insurance plan with a common amount of per employee cover that is available, and all senior employees can be grouped in another policy which offers a higher amount of per employee cover. The company might want to pay the premium for all these policies from its own account as it may be able to claim the entire amount as tax write off. In fact, all top employees in the country do so. But if a specific employee wants to get more cover than what the base employer policy gives them, they may be provided the option to buy extra cover by paying extra premium from their own pocket.

Tax Benefits on Health Insurance in India

The income tax law in India allows you to claim up to INR 25,000 deductions from your taxable income for the premium you pay for your health insurance. This can be up to INR 50,000 in case of one partner being a senior citizen. Further, a health insurance purchased for parents is also counted for deduction of INR 25,000, and in case of parents being senior citizens, the same goes up to INR 50,000. So, technically, a deduction of INR 1 lakh can be availed in case of parents and at least one being a senior citizen.

Tax Benefits on Health Insurance Provided by the Employer

For employer-provided health insurance, the deduction becomes available to whoever is paying for the health insurance plan:

• Where employer is sole payer, employees cannot claim any deduction in income tax

• Where joint payment is made, either party can claim deduction only to the limit of premium amount they are paying

• Where employee is paying from their own pocket and employer is only an ‘enabler’, employees can make the tax benefit on health insurance claim. In case of deduction of premium made through salary deductions, the same will need to be counted in the employee’s Form 16.

FAQs

1. How much tax can I save on health insurance?

The maximum tax benefits for salaried employees on health insurance under Section 80D are as follows – a ₹25,000 annual deduction for health insurance premiums for non-senior citizens and a ₹50,000 annual deduction for health insurance premiums for senior citizens. A ₹5,000 annual deduction towards preventive health checkup expenses is also included in this limit.

2. What is the limit of 80D claim?

The maximum health insurance deductions allowed under Section 80D is ₹1 lakh. This depends on the policyholder’s age. The maximum limit of 80D claims for different categories is as follows:

Self, spouse, parents, Hindu Undivided Family (HUF) members and children (less than 60 years) - ₹25,000

Self, spouse, parents, Hindu Undivided Family (HUF) members and children (above 60 years) - ₹50,000

3. Can I claim 80D without health insurance?

Yes, but only for senior citizens (especially when they are not covered in your health insurance policy, or when your policy’s coverage amount is not sufficient for them). However, it is important to note that the maximum deductions you can claim for senior citizens without health insurance under Section 80D is ₹50,000.

4. Can I claim both 80C and 80D?

Yes, you can claim maximum deductions of ₹1.5 lakh and ₹1 lakh under Sections 80C and 80D respectively, in the same year.

Conclusion

All said and done, do note that health insurance plans are not just measures to save tax. They are a major financial safety instrument. The government only provides income tax benefit as an incentive, so that more people buy health insurance and get the treatment they need without going bankrupt. So, whether your employer offers insurance or you need to get a policy yourself, make sure you are always covered.

Disclaimer: The above information is for illustrative purposes only. For more details, please refer to the policy wordings and prospectus before concluding the sales.

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