How to save tax legally?
You must have brainstormed a lot to find a perfect answer to this question, but might have failed a lot of times. Tax saving is an essential part of financial planning where one trip to the hospital is sure to cause a stir in your financial condition by wiping out your entire savings.
So, what if someone had told you that you can save tax legally by using health insurance as a weapon? Doesn’t it solve both the problems?
Insurancedekho is here to share these secrets of tax-saving with health insurance with you today, that you might be ignoring while financial planning.
But prior to that, let us understand the dual-objective of tax saving-
- Meeting financial goals when you come across a medical emergency
- Saving on income tax annually
Now let’s check some easy ways to save tax on your hard-earned money and be a good financial planner:
1. Saving tax under section 80DDB (Treatment of critical illnesses)
Section 80DDB of the Income Tax Act covers tax-saving provisions based on the expenses they incur for treatment of certain diseases in particular. So, you get dual benefits-protection against critical diseases and tax deductions of up to Rs. 40,000-Rs. 60,000 for Senior citizens and Rs. 80,000 for very senior citizens. One can avail a tax deduction amounting to Rs. 40,000-Rs. 80,000 in case of a specified illness like cancer, chronic renal failure or Cardiac disease.
It can be availed for self, parents, spouse, children, and siblings by following a mandate of attaching a certificate issued by the doctor while filing an income tax return.
2. Tax planning under section 80DD (Treatment of a dependent with a disability)
In this case, the dependent has/have to be your spouse, parents, children or siblings to be eligible for deduction. If the dependent has a disability of 40% or above, he/she is then the income tax deduction limit is Rs. 75,000 and if the disability of 80% or above, then the deduction amount is Rs. 1,25,000.
Individuals who are Indian residents, as well as HUFs, can claim deductions under this act whereas non-resident individuals cannot.
3. Saving Tax through Section 80U (Person with disability)
Tax benefits under Section 80U can be availed by someone who is certified with a disability by the medical authority. People can avail a deduction of Rs. 75,000 for people with disability and for Rs. 1,25,000 for people with a severe disability.
If the disability is for more than 80%, it is considered as a severe disability in this section. Disability, for this section, is defined as one of the following:
- Mental illness
- Hearing impairment
- Locomotor disability
- Mental retardation
4. Income tax deduction on Medical Allowance on Section 17
In every financial year, a deduction of Rs. 15,000 is allowed if the medical expenses of you or your family, are paid by your employer by your salary.
To understand the process of tax-saving with health insurance better, refer to the table below:
|EXPENSES||ACTUAL EXPENSE||DEDUCTION ALLOWED||FINAL DEDUCTION|
|Health Insurance Premium for Self, Spouse, and Children||Rs. 15,000||Rs. 25,000||Rs. 15,000|
|Preventive Health Check-up for Self, Spouse, and Children||Rs. 15,000||Rs. 5,000||Rs. 5,000|
|Total for Self, Spouse, and Children||Rs. 30,000||Rs. 25,000||Rs. 20,000|
|Health Insurance Premium (Senior Citizen)||Rs. 28,000||Rs. 30,000||Rs. 28,000|
|Preventive Health Check-up for (Senior Citizen)||Rs. 10,000||Rs. 5,000||Rs. 5,000|
|Total for Parents (Senior Citizen)||Rs. 38,000||Rs. 35,000||Rs. 30,000|
|Total Deduction Available for Year||Rs. 50,000|
It is often said that one should not invest merely to save taxes. Considering health insurance as an investment, you not only get a health cover with the premium paid, but also aids in saving tax. Thinking about rising hospital costs, buying health insurance is to help.