Under the Indian Income Tax law, life and health insurance are two distinct plans. They are subject to different tax regulations. 

While people know what health insurance and life insurance is, it can be exceedingly challenging for a novice to understand tax laws and make the proper claim when filing tax returns. Let’s dispel some misunderstandings about how health insurance and life insurance qualify for different tax deductions.

Obtaining tax savings:

Under Section 80C of the Income Tax Act of 1961, you are eligible to deduct the premiums you paid for the life insurance policy. The deductions for health insurance premiums are governed by Section 80D of the Income Tax Act.

Tax benefit is subject to change in tax laws.

Tax break for life insurance:

To qualify for a tax deduction for life insurance premiums under Section 80C of the Income Tax Act, you must meet the following requirements:

• A deduction can only be made by an individual or a Hindu Undivided Family. They could be residents or non-residents. The person might be a foreigner or one of Indian descent.

• For each financial year, the maximum deduction allowed under this clause for all insurance and investment options (including life insurance premium) is Rs. 1,50,000.

• People may purchase life insurance for themselves, their spouses or children, or both.

• Pure term insurance, a traditional or ULIP plan are all possible policy options.

• Deduction is capped at 20% of the sum assured for policies issued on or before March 31, 2012. The same is limited to 10% for plans issued on or after April 1, 2012. The deductions are capped at 15% of the capital sum assured for policies taken out on or after April 1, 2013, in the name of any individual with a disability listed in section 80U or a condition listed in section 80DDB.

• If the policyholder surrenders the insurance policy before 2 years or 5 years, respectively, the tax deductions claimed for traditional and ULIP life insurance plans could be reversed.

Tax benefit is subject to change in tax laws.

Health insurance tax deduction:

Section 80D only allows for individual or Hindu Undivided Family deductions. The person could be a local or even a non-local. Therefore, NRIs or even foreign nationals are eligible to claim a tax deduction for health insurance.

• Under Section 80D of the Income Tax Act, only medical insurance and critical illness policies are eligible for a deduction. Personal accident insurance premiums are not eligible.

• Deductions are allowed for payments made as the premium for a health insurance policy, the cost of a preventive health checkup, or for the Central Government Health Scheme (CGHS).

• One may make payments for themselves, their spouse, their children who are dependent (regardless of how many there are), or their parents (dependent or not).

• Health insurance premiums must be paid in a method other than cash to be eligible for the deduction. Cash payments can be made, however, for preventive health examinations.*

• Regardless of which year the payment relates to, the deduction under Section 80D is allowed on a “payment basis” in the year you made the payment.

• The premium for such a coverage is eligible for a deduction under section 80D if it can be linked to health riders such as critical illness riders, surgical care riders, hospital care riders, etc. Please note that the part does not apply to premiums for accident riders.*

Tax benefit is subject to change in tax laws.

FOR WHOSE BENEFIT PAYMENT CAN BE MADE	SELF, SPOUSE AND DEPENDENT CHILDREN	PARENTS
Mediclaim insurance premium	Rs. 25,000	Rs. 25,000
Preventive health checkup	Rs. 5,000 (included in the limit above)	Rs. 5,000 (included in the limit above)
Additional Deduction (in case it is a health insurance for senior citizens)	Rs. 5,000	Rs. 5,000

The Fine Line: Sections 80C and 80D

It is evident from the information supplied so far that the protections provided under sections 80C and 80D have more subtle distinctions*. Here is a succinct overview in case you missed them:

PARTICULARS	SECTION 80C (LIFE INSURANCE)	SECTION 80D (HEALTH INSURANCE)
Coverage of parents	Not covered	Covered
Coverage of children	Covered whether dependent or not	Covered only if dependent
Maximum limit of deduction	Rs. 1,50,000	Rs. 25,000 (Additional Rs. 5,000 if the insured or their parent is a senior citizen)
Payment mode	No restriction	For premium, other than cash
Reversal of deduction	Yes, in case of surrender of policy	No such provision
Deduction available on payment basis	No such provision	Yes
Critical illness rider for life insurance policies	Cannot be claimed here	Can be claimed here

Tax benefit is subject to change in tax laws.

* Standard T&C Apply

‘Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read MovieRulz7 the sales brochure/policy wording carefully before concluding a sale. ‘