Deduction in respect of health insurance premia.
126(1)
An assessee, being an individual or a Hindu undivided family, shall be allowed a deduction of a sum as specified in sub-sections (2) to (8), payment of which is made by any mode as specified in sub-section (9), out of his income chargeable to tax in the tax year.
126(2)
In the case of an assessee, being individual, the sum referred to in sub-section (1), shall be the aggregate of the whole of the amount paid—
- (a) to effect or keep in force an insurance on the health (herein referred to as health insurance) of the assessee or his family, or any contributions made to the Central Government Health Scheme or such other scheme, as notified by the Central Government in this behalf, or any payment made for preventive health check-up of the assessee or his family, up to twenty-five thousand rupees in aggregate;
- (b) to effect or to keep in force the health insurance, or any payment made for preventive health check-up, for the parent or parents of the assessee, up to twenty-five thousand rupees in aggregate;
- (c) on account of medical expenditure incurred on the health of the assessee or any member of his family, up to fifty thousand rupees in aggregate; and
- (d) on account of medical expenditure incurred on the health of any parent of the assessee, up to fifty thousand rupees in aggregate.
126(3)
The deduction in respect of amounts referred to in sub-section (2)(a) or (2)(b), which are paid on account of preventive health check-up, shall be allowed up to five thousand rupees in aggregate.
126(4)
The amount of sum referred to in sub-section (2) shall not exceed fifty thousand rupees in aggregate of the sum specified under sub-sections 2(a) and 2(c) or aggregate of the sum specified under sub-sections 2(b) and 2(d).
126(5)
In the case of assessee, being Hindu undivided family, the sum referred to in sub-section (1), shall be the aggregate of the whole of the amount paid––
- (a) to effect or keep in force an insurance on the health of any member of that family, up to twenty-five thousand rupees in the aggregate; and
- (b) on account of medical expenditure incurred on the health of any member of that family, up to fifty thousand rupees in the aggregate.
126(6)
The amount of sum under sub-section (5) shall not exceed fifty thousand rupees in the aggregate of the sum specified under sub-section (5)(a) and (b); or
126(7)
For the purposes of this section, where the amount is paid on account of medical expenditure incurred on the health of senior citizen under sub-section (2)(c) or (d) or (5)(b), deduction shall be allowed, if no amount has been paid to effect or to keep in force the health insurance of such person.
126(8)
Where the sum specified in sub-section (2)(a) or (b) or (5)(a) is paid to effect or keep in force the health insurance of any person specified therein, and—
- (a) such person is a senior citizen, the amount of sum as provided in such clauses, shall be substituted with fifty thousand rupees for twenty-five thousand rupees; and
- (b) such sum is paid in lump sum in the tax year for more than a year, a deduction shall be allowed for each of the relevant tax year equal to the appropriate fraction of such amount.
126(9)
For the purposes of deduction under section (1), the payment shall be made by any mode,—
- (a) including cash, in respect of any sum paid on account of preventive health check-up; or
- (b) other than cash in all other cases not falling under clause (a).
126(10)
In this section,—
- (a) “appropriate fraction” means the fraction where the numerator is one, and the denominator is the total number of relevant tax year;
- (b) “family” includes the spouse and dependant children of the assesse; and
- (c) “relevant tax year” means the tax year beginning with the tax year in which such lump sum amount is paid and the subsequent tax year or years during which the health insurance remains in force.
126(11)
The health insurance referred to in this section shall be as per the scheme made in this behalf by—
- (a) the General Insurance Corporation of India formed under section 9 of the General Insurance Business (Nationalisation) Act, 1972 and approved by the Central Government in this behalf; or
- (b) any other insurer and approved by the Insurance Regulatory and Development Authority established under section 3(1) of the Insurance Regulatory and Development Authority Act, 1999.
Section Summary:
Section 126 of the new income tax law provides deductions for health insurance premiums and medical expenses incurred by individuals or Hindu Undivided Families (HUFs). The purpose is to incentivize taxpayers to invest in health insurance and cover medical expenses, thereby reducing their taxable income. The section specifies limits for deductions based on the type of expense (e.g., health insurance, preventive health check-ups, or medical treatment) and the category of beneficiaries (e.g., self, family, or parents).
Key Changes:
- Increased Deduction Limits for Senior Citizens: The deduction limit for health insurance premiums for senior citizens has been increased from ₹25,000 to ₹50,000.
- Lump-Sum Payments for Multi-Year Policies: Taxpayers can now claim deductions proportionately for lump-sum payments made for health insurance policies covering multiple years.
- Preventive Health Check-Ups: A separate deduction limit of ₹5,000 is introduced for preventive health check-ups, which is part of the overall ₹25,000 limit for health insurance.
- Cash Payments Allowed for Preventive Check-Ups: Payments for preventive health check-ups can be made in cash, unlike other health insurance payments, which must be made through non-cash modes.
Practical Implications:
- For Individuals: Taxpayers can claim deductions for health insurance premiums paid for themselves, their family, and their parents. Senior citizens benefit from higher deduction limits.
- For HUFs: HUFs can claim deductions for health insurance premiums and medical expenses incurred for any member of the family.
- For Senior Citizens: If no health insurance is purchased for senior citizens, medical expenses up to ₹50,000 can still be claimed as a deduction.
- For Preventive Health Check-Ups: Taxpayers can claim up to ₹5,000 for preventive health check-ups, which is included in the overall ₹25,000 limit for health insurance.
Critical Concepts:
- Family: Includes the taxpayer’s spouse and dependent children.
- Senior Citizen: Refers to individuals aged 60 years or older.
- Appropriate Fraction: For lump-sum payments covering multiple years, the deduction is spread proportionately over the years the policy is in force. For example, if a taxpayer pays ₹75,000 for a 3-year policy, they can claim ₹25,000 each year for 3 years.
- Relevant Tax Year: The tax year in which the lump-sum payment is made and subsequent years during which the policy is active.
Compliance Steps:
- Documentation: Maintain proof of payment for health insurance premiums, preventive health check-ups, and medical expenses. This includes receipts, policy documents, and payment modes (e.g., bank statements for non-cash payments).
- Reporting: Ensure that the total deductions claimed do not exceed the specified limits (e.g., ₹25,000 for health insurance, ₹5,000 for preventive check-ups, and ₹50,000 for senior citizens).
- Lump-Sum Payments: For multi-year policies, calculate the appropriate fraction and claim deductions proportionately over the relevant tax years.
Examples:
Individual Taxpayer:
- Health insurance premium for self and family: ₹20,000
- Preventive health check-up: ₹4,000
- Medical expenses for parents: ₹30,000
- Total deduction: ₹20,000 (health insurance) + ₹4,000 (check-up) + ₹30,000 (medical expenses) = ₹54,000. However, the maximum deduction allowed is ₹50,000 (₹25,000 for health insurance + ₹25,000 for parents’ medical expenses).
Senior Citizen:
- Health insurance premium for a senior citizen parent: ₹40,000
- Medical expenses for the same parent: ₹10,000
- Total deduction: ₹40,000 (health insurance) + ₹10,000 (medical expenses) = ₹50,000. If no health insurance is purchased, the full ₹50,000 can be claimed for medical expenses.
Lump-Sum Payment:
- A taxpayer pays ₹1,00,000 for a 4-year health insurance policy.
- Deduction per year: ₹1,00,000 ÷ 4 = ₹25,000 per year for 4 years.
This section simplifies the process of claiming deductions for health-related expenses while introducing new provisions to accommodate senior citizens and lump-sum payments. Taxpayers must ensure compliance with the specified limits and payment modes to maximize their deductions.