High medical inflation calls for higher tax deductions for medical expenses, say experts

With rising medical costs, health insurance has become an absolute must but it entails a certain cost. On the other hand, those with no insurance coverage face the risk of high medical expenses making a big dent in their finances.

But thanks to tax deductions allowed for health insurance premium payments and medical expenses, one can use them to reduce their tax liability. These deductions are covered under Sections 80D, 80DD, and 80DDB of the Income Tax Act. These apply to individuals and Hindu undivided families. Given its wider applicability, Section 80D is the most commonly used one.

Note that, you can claim these deductions only if you have opted for the old tax regime. These are not permitted under the new concessional tax regime.

Here’s what individuals can claim as deductions under these sections:

Section 80D – A taxpayer can claim a deduction for health insurance premiums paid and expenses incurred on preventive health check-ups for self and family (spouse and dependent children) for an aggregate amount of up to Rs 25,000 per financial year.

The limit for preventive health check-ups is Rs 5,000 and forms part of the Rs 25,000 limit. In addition, a taxpayer can claim another Rs 25,000 deduction for health insurance premiums paid and expenses incurred on preventive health check-ups for parents.

If the person – self/family or parents – for whom the premium is paid is a senior citizen, the deduction limit goes up to Rs 50,000. (see table for details). So, if you are a senior citizen yourself and also pay the premiums for your parents, you can claim a total deduction of up to Rs 1 lakh.

To cover situations where senior citizens do not have health insurance, Section 80D provides for the deduction of medical expenses incurred of up to Rs 50,000 a year. Children who pay for their parents’ medical expenses can also claim this benefit.

Chetan Chandak, director of TaxBirbal, a tax firm, said that given the prevalent high medical costs, there is a case for raising these limits, especially in the case of senior citizens as it can help people who are taking care of their parents. More importantly, he said the deduction for medical expenses for a senior citizen must not be made conditional on their not having insurance coverage.

“Medical expenses can be very high and a health insurance policy may not cover your entire cost. So, a deduction of up to Rs 50,000 for out-of-pocket expenses can be helpful,” Chandak said.

Sudhir Kaushik, co-founder of Taxspanner.com, a tax firm, however, said that putting this into practice may require some verification processes and can make its implementation complex.

Note that while payment for preventive health check-ups can be made in any mode, including cash, other payments must be made in non-cash mode to claim Section 80D deductions.

Also read: Income tax returns: Claiming tax deductions without proofs can backfire, warn CAs

Section 80DD – A taxpayer is allowed a deduction for maintenance expenses including medical treatment of a dependent who is a disabled person. This includes any amount paid as an insurance premium for the maintenance of a disabled person, who could be the taxpayer’s spouse, child, parent, brother, or sister.

The deduction can be claimed for an amount of up to Rs 75,000 per financial year for a disabled person (40 percent or more disability) and up to Rs 1.25 lakh for a severely disabled person (80 percent or more disability) for specified disabilities. The taxpayer must provide a certificate issued by the prescribed medical authority to this effect.

Also read: Budget 2022 offers additional tax concessions to the differently abled: Here are the details

Section 80DDB – This section provides for the deduction of medical expenses incurred for the treatment of specified diseases or ailments – on oneself or a dependent family member. Deduction of up to Rs 40,000 can be claimed per financial year. If the person with the ailment is a senior citizen, then the deduction limit goes up to Rs 1 lakh.

The eligible ailments under this section include dementia, Parkinson’s disease, malignant cancers, and hemophilia. To claim this deduction, the taxpayer must provide a certificate from the relevant specialists such as neurologists, oncologists, and urologists.

Also, the deduction will be reduced by the amount, if any, received from an insurance company or an employer for such medical treatment.

Kaushik said the Rs 40,000 limit was set many years ago and with medical inflation having spiked, the government could look into raising this limit. “Such ailments may not always affect senior citizens only. Also, such ailments will hit a person’s earning capacity while at the same time, adding to their or their family’s medical expenses. A higher deduction limit for anyone, irrespective of age, can be considered,” Kaushik said.