Of the several deductions that a taxpayer can claim from his or her total income to reduce the tax outgo, Sections 80C and 80D are probably the most used ones. And the buzz is that the Interim Budget tomorrow may have good news on both fronts.
Every individual or Hindu Undivided Family can claim a deduction on payment of medical insurance premiums in a fiscal, which is over and above the benefits under Section 80C. According to Cleartax, an individual can claim a deduction of up to Rs 25,000 for the insurance of self, spouse, and dependent children. If you have taken medical cover for your parents, you are eligible for higher deductions - to the extent of Rs 25,000, if they are less than 60 years of age, or Rs 50,000 if your parents are senior citizens. The last budget had increased the Section 80D deduction for senior citizens from Rs 30,000 to Rs 50,000.
Given that medical inflation is pegged to be growing at 14-16%, this is a prudent tax-saving investment to take care of unforeseen healthcare expenses. But experts say that the current limit is not enough for a family with children, especially with lifestyle diseases on the rise. Hence, there is a strong case for raising the deduction ceiling. It will also motivate Indians to seriously look at medical insurance - reportedly only 20% of the population boasts some kind of health cover, making India one of the world's least insured nations.
The buzz is that the government may give in to this demand in the upcoming budget, especially given its focus on healthcare. "Up to last year, medical reimbursements by the employer up to 15,000 were eligible for tax deduction under the head salary. Even this deduction was withdrawn by the Finance Act 2018 on pretext of standard deduction. The cost of medical care is massive and the government should consider introducing the deductions for a taxpayer below 60 years of age to cover the medical expenses incurred by him or her," Naveen Wadhwa, DGM, Taxmann.com told NDTV.
The wishlists of the common man and industry bodies have another thing in common: A demand for an increase in the maximum deduction limit under Section 80C from Rs 1.5 lakh to Rs 2 lakh. The current 80C limit hardly provides any relief in the face of rising cost of living and inflation. Moreover, for most people, it quickly gets exhausted through expenses such as tuition fees, provident fund contributions and payments made against home loan principal. This leaves little room to save through permissible investments such as five-year notified tax-saving bank deposits, Public Provident Fund (PPF), National Savings Certificate (NSC), equity-linked savings schemes (ELSS), subscription to notified securities and deposits schemes, and more.
Assuming this wish is granted tomorrow, those with income up to Rs 5 lakh, who fall in the 5% slab, will reportedly save tax up to Rs 2,500. But those falling in the 20% and 30% tax brackets stand to save around Rs 10,000 and Rs 15,000, respectively.