Deduction under Section 80D – Tax Saving through Medical Insurance

This deduction is available to an individual or HUF whether resident or non resident.

In case of an individual, deduction shall be aggregate of the following:

Premium paid for self, spouse and dependent children. Deduction allowed is lower of:

  • Amount of premium paid for medical insurance.
  • Maximum of Rs.25,000 p.a.

Premium paid for parents (less than 60 years) whether dependent or not. Additional Deduction allowed is lower of:

  • Amount of premium paid for medical insurance
  • Maximum of Rs.25,000 p.a.

Note: If the parents are senior citizens then limit has been raised to Rs.50,000p.a ( It has been increased from Rs.30,000 in Budget 2018).

A summary of deduction allowed under Section 80D is explained in table below:

Therefore, an assessee can claim a maximum deduction of Rs. 1,00,000 in a financial year (If his age and his parents age is more than 60 years)

Deductions under Section 80 C, 80CCC, 80CCD

Other Deductions under Section 80 C:

  1. Any payments towards a deferred annuity – For individual, on life of self, spouse or any child.
  2. Contribution made under Employee’s Provident Fund
  3. Contribution Units of UTI/notified mutual fund.
  4. Investment in ULIP plans( Unit Linked Insurance Plans).
  5. Sum deposited in 10 year/15 year account of Post Office Saving bank
  6. Subscription to any notified securities/notified deposits scheme – for e.g. Sukanya Samridhi Account.
  7. Subscription to any notified savings certificate, Unit Linked Savings Certificates
  8. Contribution to Unit Linked Insurance Plan of LIC Mutual Fund.
  9. Contribution to notified deposit scheme/ pension fund set up by the National Housing Scheme.
  10. Payments made by way of instalment or part payment of loan taken for purchase/construction or residential house
  11. Contribution by employee to a recognized Provident Fund or a Superannuation Fund.
  12. Tuition fees paid at the time of admission or otherwise to any school, college, university or other educational institutions situated within India for the purpose of full time education of any two children. However, any payment towards any development feed or donation or payment of similar nature will not be eligible.
  13. Subscription to Bonds issued by NABARD as notified by Central Government.

Deductions under Section 80 CCC

This refers to payment of premium by the individual (i.e. you the assessee) towards pension plans of LIC or any other Insurer. Deduction is available upto a limit of Rs. 150,000 in conjunction with Section 80C and Section 80 CCD.

Deductions under Section 80 CCD

  1. Contribution made by an employee towards the National Pension Scheme (NPS) upto a maximum permissible limit of Rs 150,000 Additional contribution to NPS subject to maximum limit or Rs 50,000 under new section 80CCD (1B). Contributions for Atal Pension Yojana are also eligible for deduction.
  2. Under Section 80 CCD(2) – Deposit made by an employer towards an employee’s National Pension Scheme (NPS) account, where the deposit does not exceed 10% of his/her salary, does not have a Rs. 150,000 limit.
  3. In case of self –employed individuals, from FY 2017-18, contributions of upto 20% of gross total income are deductible (vs. 10% earlier). This is subject to the maximum limit of Rs. 150,000

What is ELSS and why is it so popular?

Equity Linked Saving Schemes (ELSS) are specific open ended mutual fund schemes, investment in which can yield tax benefits of up to Rs.45,000. These schemes have multi fold benefits such as –

  • They aid in tax savings since they are deductible from your total income u/s 80C up to a maximum permissible limit of Rs. 150,000. Your tax saving will then be determined by your tax bracket. For example if you belong to the 20% tax bracket, that is your total annual income is between Rs. 5 lacs and Rs. 10 lacs and you have made an investment of Rs. 1,00,000 in ELSS, your effective tax saving is Rs. 20,000.
  • They are a good avenue for capital growth. As per the CRISIL – AMFI ELSS Fund Performance Index, the 10 year return on these funds has averaged close to 18.6%. The 5 year return for the same is 16.9%.
  • Most ELSS investments are made towards equities of publicly listed companies of the country and hence aid in nation building and also gives the investor a chance to participate in the nation’s economic growth.

ELSS Features –

  • Amount – Any amount in multiples is Rs. 500
  • Lock-in duration – 3 years
  • Duration – Any
  • Maximum amount – Rs. 500
  • Minimum amount – Any, however deduction allowed is only upto Rs. 1.5 lacs u/s 80C
  • Number of instalments in a year – Optional as – yearly, half yearly, quarterly or monthly
  • Charges – There are no entry or exit loads for ELSS. The only fee charged is the fund management fee which is also capped at 2.25% for all ELSS Funds.
  • Tax implications – LTCG > Rs.1Lakh will be taxable at 10%. (Partial Taxable). In case of dividend option- Dividend received is Tax free.

ELSS is one of the many investments tools under Section 80C that provide tax savings. A comparative study on the performance of some investments under Section 80C reveals that ELSS over the longer period has been a rewarding tool for tax payers.

ELSS Return
Instrument Ease of Investment Impact of relevant Tax
ELSS
  • Minimum investment :Rs. 500
  • Can be opened easily through your bank.
  • Lock-in period :3 years
  • LTCG > Rs.1 Lakh will be taxable at 10%. (Partially Taxable).
  • In case of dividend option- Dividend received is Tax free.
Public Provident Fund (PPF)
  • Initial investment : Rs. 100.
  • Minimum annual deposit : Rs. 500
  • Can be opened online or offline at your closest bank branch/post office.
  • An easy investment to make but it demands maintenance.
Interest is Tax free
Senior Citizen’s Saving Scheme
  • Investment in multiples of Rs. 1000 (upto a maximum of Rs. 15 lacs) at any bank or post office branch.
  • No additional deposits are required to maintain the account.
  • Premature termination is allowed after a year at a penalty of 1.5%. This makes the investment easy to open and maintain.
Not Taxable
Sukanya Samridhi Yojana
  • Account can be opened anytime after a girl child is born but before she turns 10 years.
  • Minimum yearly deposit : Rs. 1000 (which can also be made in multiples of 100 through the year).
  • Not flexible in terms of withdrawal.
  • Investment period : 15 years the maturity technically is 21 years from investment.
  • Practically however, the entire amount can be withdrawn easily when the girl child turns 21.
Interest earned is Tax free.
National Pension Scheme
  • Minimum Investment : Rs. 500 but an annual contribution of Rs. 6000 (towards Tier 1) is required to maintain the account thereafter. If that is not an issue then, the NPS is a moderately easy type of investment to make and maintain.
  • Tier 1 cannot be withdrawn till 60 years of age. (Or only 20% can be withdrawn with the balance 80% having to be invested in a pension product)
  • Tier 2 is fully withdraw-able at any time with no penalty attached making it a very liquid investment. You can’t open a Tier 2 without having a Tier 1 account.Rs. 500
  • Do note: even after getting a deduction of Rs. 1.5 lacs u/s 80C, contributor can get a further deduction of Rs. 50,000 u/s 80CCD(1B) and further deduction if employer makes contribution upto 10% of basic salary and dearness allowance u/s 80CCD(2).
  • You cannot withdraw the entire amount after retirement.
  • 40% must be kept aside to receive as regular pension.
  • Of the remaining 60% amount(if withdrawn), 40% is Tax Free and remaining 20% is taxable(as per slab rates)- Partially Taxable.
Unit Linked Insurance Policies (ULIPs)
  • Lock-in period: 5 years
  • ULIPs have undergone a massive transformation. While charge heads remain the same (i.e. Premium allocation charge, policy admin charge, fund management charge, mortality charge, surrender charge, switching charge, discontinuance charge), there has been a significant reduction in these.
Tax Exemption on investment, accrual and maturity.
National Saving Certificates (NSCs)
  • Minimum investment: Rs. 100.
  • Can be opened at any Post Office
  • No maintenance is required.
  • Premature withdrawal is allowed only in case of death or a court order.
  • Accrued Interest on NSC qualifies for Section 80C deduction.
  • Interest on NSC is taxable as per slab rates.
Pension Plans
  • With digitisation, pension plans have become easy to purchase.
  • Ease of maintaining and withdrawal of funds defers from plan to plan.
  • Only 33% of the corpus is Tax-free on maturity
  • 66% of the corpus of pension plan is taxable.
Bank Fixed Deposits (FDs)
  • Minimum Investment: Rs. 1000
  • An extremely easy investment to make
Interest Income from fixed deposits (FD's) is fully taxable
Traditional Insurance policies (excluding Term Insurance)
  • While buying a traditional insurance policy is extremely easy, premium payments needs to be maintained in order to avoid the policy lapsing.
  • Since these policies are for a very long term, maintenance of the same can prove to be difficult.
Any amount, which is received at the time of maturity, is exempt from tax u/s 10(10D).