Section 80D, Tax-Saving Tips: 2020

“Tax saved is income earned” – That’s the modern-day version of an age-old cliche-money saved is money earned. As we stepping into new fiscal year and striving through this lockdown, every financial decision should be taken with utmost care.

Inefficient tax planning or lack of financial management often results in:

  • Significant reduction in your take-home income.
  • Payment of a substantial amount of income tax at the end of every fiscal year.
  • Difficulties in keeping your regular financial commitments.
  • Considerable challenges in meeting your monetary goals in time.

The Solution? Avoiding a high income-tax outgo with the help of instruments of tax savings, smart investments and strategies.

Let’s focus on health insurance provisions under section 80D of the Income Tax Act and other medical expenditures related tax benefits under 80D, 80DD, 80DDB and 80U. We’ll also briefly go through other prominent tax-saving tips for 2020.

Health Insurance: Tax Savings Under Section 80D

Purchase medical insurance and avail tax deductions under Section 80D! Health insurance for yourself, your family, dependent children and parents can help you save tax. You can save tax up to a maximum of 1 lakh rupees every financial year if you, your family members and both parents are above the age of 60.

OptionsPremium Paid for Self/Family/ChildrenPremium Paid for ParentsSection 80D Deduction
Individual/parents below 60 years of age25,000 Rupees25,000 Rupees 50,000 Rupees
Individual/family below 60, but parents above 60 years of age25,000 Rupees50,000 Rupees75,000 Rupees
Individual, family and parents-all above 60 years of age50,000 Rupees50,000 Rupees1 Lakh Rupees
Members of HUF (Hindu undivided family)25,000 Rupees25,000 Rupees25,000 Rupees
Non-resident individual25,000 Rupees25,000 Rupees25,000 Rupees

Payments for preventive health check-ups entitle you a deduction of up to 5,000 rupees.

Contributions must be made to health insurance policies specified by the Central Government of India and approved by the IRDA (Insurance Regulatory and Development Authority).

All payments should be made by modes other than cash. Premium payments for your brother, sister, grandparents, uncles, aunts and other relatives cannot be claimed. The deductions are in addition to savings through deductions under section 80C.

Medical Expenditures Related Tax Savings Under Sections 80D, 80DD, 80DDB and 80U

It is appropriate for those who cannot afford health insurance or who are unable to buy one because of pre-existing conditions.

1] Section 80D

  • Save tax by claiming medical expenditures as a deduction from income before tax (a maximum of 50,000 rupees in a financial year).
  • The expenditure should be incurred on self, your spouse, dependent children or/and parents.
  • The individual on whom this expenditure is incurred must be over 60 years of age and not be covered under any health insurance.

2] Section 80DD & 80U

  • 80DD lets you claim medical expenditures on treatment, training and rehabilitation of a person with a disability as a deduction from income before tax (75,000 rupees if the disability is more than 40%, but less than 80% and 1.25 lakh rupees if it is 80% or more).
  • It can also be claimed if the individual has paid for or deposited money under any Life Insurance Corporation (LIC) scheme, with another insurer, administrator or the specific company for the maintenance of the disabled dependant.
  • 80U is applicable if the individual himself or herself has a disability. Both these deductions cannot be claimed at the same time.

3] Section 80DDB

  • Claim medical expenditures only on the treatment of specific illnesses (under this section) as a deduction (a maximum of 40,000 rupees if the individual on whom expenditure is incurred is below the age of 60 and 1 lakh rupees if he/she is 60 or above).
  • The deduction can be claimed for yourself or a dependant.

Other Prominent Tax-Saving Tips: 2020

1] Life/Term Insurance & Unit Linked Insurance Plans

  • Save on taxes by investing in Life or Term insurance and Unit Linked insurance plans.
  • Section 80C of the Income Tax Act allows deductions on premiums and payouts of Life/Term insurance plans.
  • Your premium towards Life insurance is not taxed if it is under a total of 1.5 lakh rupees.
  • Section 10(10D) ensures Life/Term insurance payouts are exempted from tax.
  • Investments in Unit Linked insurance plans not only help your money grow but are also eligible for tax deductions.

2] Market-Linked Instruments: Equity-Linked Saving Schemes (ELSS), Mutual Funds & National Pension Scheme (NPS)

  • ELSS provide huge returns. Premium investments below 1.5 lakh rupees (lock-in period of three years) are exempt from taxation under Section 80C.
  • National Pension Scheme is also exempt.

3] Provident Funds, Tax Saving Fixed Deposits, National Savings Certificates and Post Office Time Deposit

  • Deposits in Provident funds, also described as Pension funds, are eligible for tax deductions under section 80C.
  • Tax Saving Fixed deposits offered by various banks (generally 1 to 1.5 lakh rupees, with a lock-in period of up to 5 years).
  • Investments in National Savings Certificates (a minimum of 100 rupees and a lock-in period of 5 to 10 years) and Post Office Time deposits (a minimum of 200 rupees and a lock-in period of 5 years) are also eligible for tax exemptions.

4] Loans for Buying a House, Construction, Renovation & Your/Your Spouse or Children’s Education

  • The loan principal and the interest paid every year are eligible for tax benefits under section 80C and section 24 of the Income Tax Act.
  • Education loans are also eligible for tax deductions under section 80E.

Taxpayers are free to choose between old and new schemes and also switch between them if required.

A clear tax-saving plan at the start of the year and its systematic implementation are necessary to minimize your tax burden.

The recent outbreak of COVID-19 disease (Coronavirus) and ever-evolving threats are merely a reminder of our healthcare uncertainties. An adequate medical insurance cover always comes in handy and secures you against a variety of undesired circumstances.

At Quickinsure, compare health insurance plans and policies by going through quotes from various established insurance providers.

Sources:IRDAI, Clear Tax, The Economic Times, Financial Express, and other information channels.

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