Tax burden frequently causes financial stress, and every earning professional seeks ways to reduce their overall tax liabilities as much as possible. The majority of taxpayers typically make investments that reduce their tax liability to claim deductions. Strategies to save money on taxes are an essential part of financial planning. While many people are aware of well-known tax breaks like the 80C deduction and house loan interest deductions, another opportunity is sometimes disregarded: saving tax by paying for health insurance premiums in a parent's name. By using this method, you can lessen your tax burden while also ensuring your parents' financial security.
However, if lowering the tax burden is your ultimate goal, choosing the solutions that offer the best tax benefits is crucial. In addition to the ubiquitous Section 80 savings options, you can save more tax by investing in your parent's names. In this blog post, we will discuss five effective strategies for saving on taxes by utilizing health insurance premiums for your parents.
1. Understanding the tax benefits from Parents' Premium Payment
According to the Income Tax Act, you are eligible to claim a deduction for the health insurance premiums you have paid for your parents. According to Section 80D, you can claim a deduction of up to Rs. 25,000 per year if you are responsible for paying the premiums for your parents under the age of 60. If your parents are senior citizens, meaning they are above 60 years old, the limit increases to Rs. 50,000. By ensuring that your parents have comprehensive health coverage, you can save a significant amount on your taxable income.
2. Purchase a Separate Policy for each Parent
Consider getting separate health insurance for each parent to get the most tax benefits. This enables you to make individual tax deductions for each parent. If you have siblings, you can share the responsibility of paying the premium, which can further increase the potential for tax savings. Remember that the overall deduction cap is still Rs. 25,000 for parents under 60 and Rs. 50,000 for parents who are senior citizens.
3. Considering Top-Up Plans
A cost-effective option to improve your parent's health coverage is through super top-up parents health insurance plans. These plans offer additional protection after the fundamental sum insured has been exhausted. With a super top-up plan, you may give your parents more protection at a more manageable amount. Additionally, tax deductions are available for these plans' premium payments under Section 80D.
4. Make use of the Family Floater Plan.
Another effective strategy is to consider choosing a family floater health insurance plan. These plans provide coverage for your entire family, including your parents, spouse, and children, all under one policy. Although this won't raise the deduction limit, it can be a financially efficient method to secure your family's health coverage while saving on premiums. Please ensure that the policy includes a range for your parents and complies with the guidelines outlined in Section 80D.
5. Critical Illness Insurance
Critical illness riders are additional provisions that can be added to an insurance policy to provide coverage for specific serious illnesses. These riders offer several benefits that are worth considering. Firstly, critical illness riders provide financial protection in the event of a severe illness.
There are many insurance companies that provide riders for critical illnesses that can be added to standard health insurance policies. These insurance policies offer a one-time payment in the event of specific acute illnesses. Although these riders may lead to an increase in the premium, they can offer significant financial assistance during times of necessity. It is important to note that the premiums paid for critical illness riders are eligible for tax deductions under Section 80D.
Here are some helpful tips for increasing your savings on income tax:
Insurance premiums: Section 80D of the Income Tax Act of 1961 provides tax exemptions for those who purchase health insurance. The applicability of these exemptions would depend on the policyholder's age. Young individuals are eligible for a rebate of up to Rs 25,000 on medical insurance premiums. In contrast, senior citizens aged 60 years and above can avail of an exemption of up to Rs 50,000. Therefore, purchasing health insurance for elderly members of your family can help you avoid paying higher taxes. Furthermore, you can buy a life insurance policy, which would allow you to avail a tax exemption of up to Rs 1.5 lakh under Section 80C of the Income Tax Act.
Health insurance premiums paid in your parents' name are a win-win investment. It not only helps you save on taxes but also ensures that your parents have sufficient healthcare coverage, providing peace of mind to the entire family. To ensure compliance with tax regulations and get the most out of the available deductions, speak with a financial counselor or tax specialist before putting these techniques into practice. By taking these steps, you can ensure the health and economic well-being of your family while also maximizing your tax-saving strategies. It is important to remember that effective financial planning involves more than just saving money. It is about ensuring the future security of your family.