How to save income tax by paying on medical expenditures on yourself or your dependent

If you are still thinking of how to save on taxes, first think of how to take care of your health by buying the right kind and amount of health insurance. The pandemic has taught all of us to value life. More than life itself, it taught us how the right kind of insurance helps to pay off our medical bills including those towards hospitalization and treatment.

Besides, health insurance bought for our families including children and our parents can help save on taxes under Section 80D of the Income Tax Act, 1961. What’s more, you can save nearly ₹1,00,000 more on income tax if you are paying the premiums towards health insurance plans bought for your aged (senior citizen) parents.

If you had foregone the need to buy health insurance or had been unable to pay towards the same owing to any reason, you can claim tax exemption on the amount spent on medical expenditures. However, you can avail of the benefits of these deductions only if you are paying taxes under the old or existing regime. Though the income tax rates paid under the new regime are low, there is no scope for claiming deductions on the same.

Tax benefits under Section 80D

Under this Section, you can claim savings on tax by claiming the amount incurred on medical expenditures. The expenditure on medical treatment can be incurred as a deduction from your income before calculating your taxes. You can, however, claim this income tax deduction subject to the following conditions.

• The medical expenditure must have been incurred on self, spouse, children, and or parents. However, there is a caveat regarding the age of the persons on which medical expenditure would be incurred. The amount is subject to tax exemption provided it is spent on members aged above 60 years.
• The person on which you had incurred medical expenses must not be covered under any health insurance policy.
• The medical expenditure should not have been paid in cash. This means that all medical expenses must be paid via banking channels including credit cards, debit cards, Net Banking or digital channels like mobile wallets, UPI payments, and so on.

Subject to the fulfilment of the above conditions, you can claim a tax deduction of up to ₹50,000 on your expenses during the financial year.

Tax benefits under Section 80DDB

Tax exemption under this section can be claimed only on the expenses meted out for the treatment of illnesses listed under this section of the Act. You can claim this deduction for yourself or your dependant provided your dependant claiming the deduction is solely dependent on your finances. If you or your dependant is less than 60 years old, you can claim a deduction only up to ₹40,000. However, if you or your dependant is more than 60 years of age, the maximum deduction that can be claimed is ₹1 lakh. Also, this deduction can be claimed irrespective of whether you have a health insurance policy or not.

Tax benefits under Section 80DD and Section 80U

These sections can be used to claim tax deductions towards medical expenditure incurred on disabled persons. You can claim this deduction on the amount spent on your treatment or a dependant who may be differently-abled. The dependant can be your parents, wife, children or unmarried brothers and sisters. This deduction can be claimed irrespective of your or your dependant’s age. However, a lot depends on the extent to which your dependant is disabled.

A deduction of up to ₹75,000 is allowed if the disability of the dependant is between 40 per cent and 80 per cent. However, if the percentage of disability exceeds 80 per cent, the Act allows you a deduction of ₹1.25 lakh. Deduction under this section can also be claimed for expenses on rehabilitation of the dependant suffering from a disability. You can also claim a deduction on the amount paid towards buying a life insurance policy for the maintenance of the dependant.

You can invoke Section 80U only if the taxpayer himself or herself is suffering from any disability.