Budget 2018 proposes a slew of benefits for senior citizens, providing them tax benefits in healthcare and giving higher income from interest.
The Union Budget has many proposals that would cheer up the senior citizens. And, one of the biggest reasons is the increase in deduction limit under section 80D of the Income-tax Act—under which one can avail benefits for payment of health insurance premiums. The premiums that you pay towards a health insurance policy qualify for tax deduction.
A deduction is the first tool to use to reduce your tax liability. It’s a reduction from your total income, and what is left after that is called your taxable income. The Union Budget 2018 has announced to increase this deduction for senior citizens from up to Rs30,000 to a maximum of Rs50,000.
This change would be applicable for the financial year 2019. For someone in the highest tax bracket of 30%—the effective income tax rate for whom would now be 31.2%, given that the education cess has been increased to 4%—the tax savings would be up to Rs15,600, compared to Rs9,270 now. “On an average, senior citizens pay around Rs10,000 as premiums but the health insurance cover is insufficient given the rising healthcare costs and their increased medical attention. Increasing the deduction limit in that sense will encourage senior citizens to buy a higher health insurance policy, which is the need of the hour,” said K.G. Krishnamoorthy Rao, managing director and chief executive officer, Future Generali India Insurance Co. Ltd.
For individuals who are below 60 years of age, no change has been proposed. The deduction under section 80D for them continues to be Rs25,000. This includes deduction on account of preventive health check-up up to Rs5,000. “Ideally, for the general segment, too, we were expecting a hike in the deduction limit that is aligned to medical inflation. An ideal insurance cover for a family of four in a metro is about Rs15 lakh and the premium a 45-year-old will need to pay is definitely more than Rs25,000,” said Sandeep Patel, chief executive officer, Cigna TTK Health Insurance Co. Ltd.
But you can benefit if you have senior citizen parents and you pay premiums on their behalf. Under section 80D, you can claim a deduction for health insurance bought for self, spouse and children. In addition to this, you can claim a further deduction for policies bought in the name of parents.
So if the parents are below 60 years of age, the total deduction available to you is Rs50,000. The Budget 2018 makes no changes here. But if your parents are senior citizens, above 60 years, you can claim an additional deduction of up to Rs50,000—taking the total deduction to Rs75,000. The preventive health check-up limit of Rs5,000 for self and another Rs5,000 for parents is within this limit.
What has also changed is that the senior citizens can now claim a deduction of Rs50,000 towards medical expenditure, instead of claiming on account of health insurance premiums only. “Currently, very senior citizens—who are above 80 years of age—can claim a deduction of up to Rs30,000 incurred towards medical expenditure, in case they don’t have health insurance. The Budget has increased this to Rs50,000 and also allowed the same flexibility to senior citizens. Even individuals who pay premiums for their dependent senior citizen's parents can claim the additional deduction on health insurance premium or medical expenditure,” said Homi Mistry, partner, Deloitte Haskins and Sells LLP.
Other than increasing the deduction under section 80D of the Income-tax Act, the Union Budget has also increased the limit of deduction for medical expenditure for self, spouse, dependent parents, children and siblings in respect of certain critical illness like malignant cancers, chronic renal failure, haemophilia and thalassaemia—from Rs60,000 in case of senior citizens and Rs80,000 in case of very senior citizens—to Rs1 lakh for all senior citizens under section 80DDB. For non-senior citizens, this deduction limit continues to be Rs40,000.