How to Claim Tax Benefits on Insurance

Insurance premiums are not just a financial protection cost — they also offer meaningful tax deductions under the Indian Income Tax Act. Yet many taxpayers either claim them incorrectly, miss deductions they are entitled to, or overbuy insurance purely for the tax benefit and end up with the wrong products. Here is how to do it properly.

Section 80D: Health Insurance Premiums

Section 80D allows deduction of health insurance premiums paid for yourself, your spouse, dependent children, and parents. The limits are:

• Up to ₹25,000 per year for self, spouse, and children (₹50,000 if the insured is a senior citizen)
• An additional ₹25,000 for parents'' health insurance premiums (₹50,000 if parents are senior citizens)
• Maximum combined deduction: up to ₹1 lakh if both you and your parents are senior citizens
• Up to ₹5,000 within the 80D limit can be claimed for preventive health check-up expenses (even if paid in cash)

Section 80C: Life Insurance Premiums

Life insurance premiums paid on your own life, your spouse''s life, or your dependent children''s life qualify for deduction under Section 80C. The overall 80C ceiling is ₹1.5 lakh per year, shared with other investments like PPF, ELSS, and home loan principal. Note: term insurance premiums also qualify — not just traditional endowment plans.

Step 1: Collect Premium Receipts Before ITR Filing

Ensure you have premium payment receipts for all qualifying policies for the financial year. Most insurers email a receipt immediately after online payment. For older policies or physical payments, log into the insurer''s portal to download a consolidated premium statement.

Step 2: Verify That the Premium Was Paid — Not Just Due

The deduction is available only for premiums actually paid in the financial year (April to March), not merely due. If you paid two premiums in a year (e.g., catching up on a missed payment), only the premium due for that year is typically deductible under 80C; consult a tax advisor for 80D edge cases.

Step 3: Claim Under the Correct Section

Do not claim the same premium under both 80C and 80D. Health insurance premiums go under 80D only. Life insurance premiums (traditional, ULIP, term) go under 80C. Mixing these up can lead to scrutiny or disallowance.

Step 4: Maintain Proof for Scrutiny

Under the new tax regime (post-FY 2023-24), most deductions including 80C and 80D are not available unless you specifically opt for the old tax regime. Ensure you have selected the correct regime and keep all receipts for at least 6 years in case of assessment.

Step 5: Do Not Buy Insurance Purely for Tax Saving

The deduction is a bonus, not a reason to buy. A ULIPor endowment plan purchased solely for 80C benefits often delivers poor investment returns compared to ELSS or PPF. Buy insurance because you need the protection, not because you need the deduction.

Common Pitfalls to Avoid

• Claiming premiums paid for siblings or in-laws — these do not qualify under 80D.
• Forgetting the additional ₹25,000 deduction for parents'' premiums — one of the most commonly missed deductions.
• Assuming group health insurance premium paid by your employer qualifies for 80D — it does not.

Conclusion

Maximising your legitimate tax deductions on insurance is straightforward with accurate records and an understanding of the applicable sections. For specific advice on how your insurance premiums fit into your overall tax planning, a TruePolicy advisor can walk you through the options relevant to your income level and family situation.