Save tax by insuring your parents

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Identifying tax-saving opportunities that suits your goals and objectives is very important. However, sometimes tax-saving opportunities can be misguided as well, particularly when you begin investing solely for the purpose of tax savings and ignoring your goals without fully understanding the repercussions of such investments.

On the other side, it can be incredibly fulfilling when you can use tax savings to benefit a worthy cause, such as your parents’ health. Health insurance is an integral part of any insurance portfolio, and investing in it can result in tax savings. However, if you also insure your parents, your tax savings could be even higher.

Unlike some other financial options, providing your parents with medical insurance is not just worthwhile, it is critical. It is prudent to get a separate health insurance coverage from the one provided by your job. While this insurance may also cover your parents, their coverage is limited. Given your parents’ age and medical condition, you may want to consider purchasing separate coverage for them.

What are the tax benefits?

As with health insurance policies for you, your spouse, and children, section 80D of the Income Tax Act, 1956 provides tax benefits for health insurance policies for your dependant parents as well. Let’s take a look at how insuring your parents’ health can boost your tax savings for the current fiscal year.

If the first scenario, if both of your parents are under the age of 60, you can claim a deduction on health insurance premiums up to Rs 25,000. Add to this the benefit of a deduction on health insurance premiums up to Rs 25,000 for self, spouse, and dependent children, and your total deduction under the aforementioned provision increases to Rs 50,000 in a fiscal year.

In the second scenario, if you and your spouse are under the age of 60 but your parents are senior citizens, you can claim a deduction of up to Rs 50,000 per year on health insurance premiums paid on their behalf. This is in addition to the Rs 25,000 tax credit on health insurance for yourself, your spouse, and your children.

The reason for this significant increase in deductible premiums paid is that health insurance premiums for senior and very senior persons have increased dramatically. Thus, insuring senior parents in addition to yourself may entitle you to a deduction of up to Rs 75,000 per fiscal year if your parents are above the age of 60.

Points to note

– Depending on the type of health insurance you purchase for your parents, it is possible that the entire section 80D limit on insurance premiums is not utilised.

– You might make use of the remaining allowance by scheduling a preventive health examination for them. As the name implies, this examination is performed to evaluate an individual’s health state and to address any emergent disorders.

– You are permitted to spend up to Rs 5,000 per year on preventative health examinations under Section 80D. This reduction is included in the total amount that you and your parents are allowed to earn.

–  If your parents qualify for a Rs 50,000 discount on insurance premiums but pay Rs 42,000, you can claim an additional Rs 5,000 by requiring them to have such checkups and making the best use of the allocated amount.