If you have exhausted the Section 80C limit and looking for other options to claim more tax deductions, then you can opt for Section 80D of the Income-tax Act, 1961.


It is one such option for taxpayers to save income tax. Section 80D offers a tax deduction on the medical insurance premium paid.  It is worth noting that you won't be able to claim this deduction under the new income tax regime as the deduction can be claimed only if you opt for the old tax regime in a financial year.


What is the maximum deduction one can claim under Section 80D?


Under Section 80D, a taxpayer can claim a deduction on the premium paid for a health insurance policy in a financial year. Those individuals paying the health insurance premium for self, spouse and dependent children can claim the deduction.


Moreover, if you pay a premium for the health insurance policy of your parents, then you can also claim additional deductions under this section. However, the amount of deduction that can be claimed under Section 80D depends on the age of the insured person.


For instance, if a taxpayer who is under 60 years, has paid health insurance premium for self, spouse and dependent children, then he/she can claim deduction of Rs 25,000 for the financial year using section 80D.


Further, if an individual pays a health insurance premium for parents below 60 years of age, then an additional deduction of Rs 25,000 can be claimed. Thus, an individual who pays the health insurance premiums for self and his parents is eligible to claim a maximum deduction of Rs 50,000.


Also, note that the amount of deduction is different for senior citizens. If the age of the insured person is 60 years or more, then the maximum deduction that can be claimed is Rs 50,000 instead of Rs 25,000. Hence, the maximum deduction that can be claimed by an individual under Section 80D varies between Rs 50,000 and Rs 1 lakh.


How much tax you can save under Section 80D?


The amount of income tax saving under Section 80D will depend entirely on the income tax slab in which your taxable income falls. For instance, if your taxable income after claiming a deduction of Rs 25,000 under Section 80D falls between Rs 2.5 lakh and Rs 5 lakh, then the tax rate is 5 per cent.


In this case, you will be able to save tax of Rs 1,300 (including cess). Similarly, if your income falls between Rs 5 lakh and Rs 10 lakh, the amount of tax saved for a deduction of Rs 25,000 is Rs 5,200 (including cess). For the highest tax rate of 30 per cent, the tax saved is Rs 7,800 (including cess).


Deduction on preventive health-check ups


Did you know that Section 80D also allows an individual to claim tax benefits for preventive health check-ups of Rs 5,000? Yes, this tax benefit is available within the maximum deduction limit of Rs 25,000 or Rs 50,000 depending on the case. For instance, if the health insurance premium paid for individuals below 60 years is Rs 21,000, then an additional benefit of Rs 4,000 can be claimed under preventive health check-up.


There are diagnostic labs and hospitals that offer preventive health check-up.


Tax benefits available on medical bills of senior citizens


If the senior citizen or senior citizen parent is not covered under any health insurance plan, then medical bills can be used to claim a deduction under Section 80D. The Income-tax Act was amended from FY 2018-19 to allow senior citizens or individuals incurring medical expenditure for senior citizen parents to allow claiming a deduction on the basis of medical bills.


Also, note that the deduction under Section 80D can be claimed if the health insurance premium is paid through electronic or digital modes such as cheque, debit card, credit card, UPI etc.  If it is paid in cash, then an individual will not be able to claim tax benefit under Section 80D. However, payment via cash is allowed for a preventive health check-up.