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What is Section 80 D and how does one Benefit from it?

Deductions under 80D

Every individual needs to pay tax without any doubt. If we try to evade it then we will be punished as it is against the law, but what we can do is reduce tax liability. How can an assessee reduce his tax liability? Answer to this question is deductions. Government of India has provided certain investment avenues through which we can reduce tax liability and 80D is one of them.

What’s 80D?

80D is one of the sections which come in the income tax act of 1961. This refers to deduction which an assessee can claim to reduce his tax liability. Like 80D there are other deductions such as 80C, 80DD, 80E, 80G,80GGB etc. some of these are in connection with individual assessees (80C, 80D), some with Hindu Undivided Family (80C,80D), some applicable only to companies (80GGB) and some to all irrespective of whether assessee is an individual or HUF or company (80G).

Claiming deduction to reduce tax liability is neither very easy nor is difficult. All you need to do is go according to the rules and regulations prescribed. For example you can claim 100 % or 50% deductions on donation made provided the trust or the fund or institution is recognized by government of India, if the fund is not in the list or in unrecognized then all the donations that an assessee has made cannot be taken as deduction. Hence it is very important for an assessee to ensure that he follows every rules and regulations. Most of the deductions have certain Do’s and Don’ts.

80D is Applicable to whom?

Assessees’ who are paying the tax as individuals and those who are paying under the head Hindu Undivided Family (HUF) can claim this deduction. Companies be it domestic, Indian or foreign cannot avail this deduction.

What’s the amount?

Amount deductible under this section is 15,000 in case of assessees below age of 65 (to keep in effect the insurance of assessee or his spouse or children) and 20,000 in case of senior citizens. Previously insurance amount paid on behalf of parents was not given as deduction, but since financial year 2008- 2009 even if the parents are independent premium paid can be claimed as deduction. Hence the total amount of deduction an assessee can claim under this category is 30,000.

In case of HUF (Hindu Undivided Family) if an assessee can claim insurance premium paid by him on behalf of family members. This insurance premium paid cannot be claimed if an assessee has paid it by cash. It has been clearly stated in the income tax act that assessee needs to pay the insurance premium through any other means except by cash. Hence payment through cheque is of the most popular methods followed by assessees’.

After reading the above paragraphs don’t jump to a conclusion that you will be able to deduct 15,000 or 30,000 from your taxable income because all that’s said above is just the half part. The other half part is that the actual amount as insurance premium paid or 15,000 whichever is lower is deductible. For example an assessee who has paid 3,000 rupees as his insurance premium, 2500 rupees to keep in effect his wife’s insurance and 2000 each in case of his two children out of his annual income of 2,25,000 rupees the deduction given to him will be

Total amount of insurance paid = 3000+2500+2000+2000 = Rs 9500
Taxable salary = 2,25,000 – 9500 = Rs 2,15,500 And not Rs. 2,10,000 (2,25,000-15,000)

It also holds good when its reverse, which is insurance premium, is more than 15,000 then the deduction will be taken as 15,000 and not the total amount of insurance premium paid. For example an assessee Mr. Z has annual income of 2,00,000 rupees and has paid 6000 rupees as his insurance premium, 5000 as his wife’s premium and 4,000 for his elder son’s premium and 3000 for his younger daughter’s insurance premium.

Total premium paid by him is = 6000+ 5000+ 4000+ 3000 = Rs 17,000 In this his taxable income will be Rs 1,85,000 (2,00,000-15,000) and not Rs 1,83,000 (2,00,000-17,000)

For whom...?

This is useful for assessees who are not insured by their employers. Some companies insure their employees and some do not believe in that so depending on that an assessee can make judgment. If your employer has already taken care of your insurance then make sure that you have insured your wife and children.

Being an assessee from HUF can I claim this deduction?

My answer to all the assessees’ who have this question is absolutely yes. Not only the premium paid to keep in effect your or your spouse’s or children’s health insurance, but also the premium paid on your relatives in your undivided family. Provided it is within the upper limit (15,000 for individuals below 65 years and 20,000 in case of senior citizens).

Points to be taken care of

  • Make sure that premium is paid by cheque or any other means except by cash
  • If you have paid insurance premium for your parent’s insurance make sure that you claim that too.
  • If you are from HUF then keep in mind the entire insurance premium that you have paid on behalf of family members.
  • In case of insurance premium paid by children, the premium exempted will be a maximum of 30,000 rupees. This is again broken down into two units’ one representing family of an assessee (assessee himself, spouse, and children) and the other part is parents. Maximum limit for each unit is 15,000. It means that if any unit has premium more than 15,000 rupees then the amount liable for exemption is 15,000 rupees only. For example an assessee has paid premium of 17,000 for his family and 13,000 rupees for his parents’ insurance premium. Then amount liable for deduction will be 28,000 (15,000+13,000) and not 30,000 (17,000+13,000).
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