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Can NRIs save tax through health insurance bought in India?

An NRI is allowed to buy a health insurance policy in India to secure their health as well as that of their family members. Most Indian health insurance policies provide treatment only within the boundaries of India.

, ET Online|
Last Updated: Mar 05, 2020, 10.44 AM IST
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NRIs are eligible to claim tax breaks.
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Health insurance comes with the double benefit of medical coverage for the policyholder and their family, as well as tax benefit. Did you know that if you are a non-resident Indian (NRI) who has a health insurance policy in India, you too, are eligible for a tax break?

That is right. Along with providing the much-needed medical coverage for the family, an NRI will also be eligible for a tax break on taxable income earned in India.

NRIs can buy health insurance in India
An NRI is allowed to buy a health insurance policy in India to secure their health as well as that of their family members. Most Indian health insurance policies provide treatment only within the boundaries of India, i.e., it will cover expenses for hospitalisation that takes place within the territorial boundaries of India.

Also, treatment overseas is typically not covered by health insurance policies bought in India. For example, if you are an NRI living in Germany and seek medical treatment there, the policy bought in India will not cover you for these expenses.

Aarti Raote, Partner, Deloitte India said, "NRIs are comparatively viewed riskier by insurance companies considering the efforts of collecting facts and ascertaining the authenticity of claims. However, NRIs covering for the health of their parents and family in India through an Indian insurance company is certainly advisable."

She adds, if an NRI buys a health insurance policy abroad, the policy may cover the treatment in India. However, the payment of premium for that policy will not be eligible for tax-benefit in India.

NRIs are eligible to claim tax breaks
For tax benefit purposes, NRIs are eligible to claim a deduction for the health insurance policy from his/her taxable income in India as per income tax laws.

Shalini Jain, Tax Partner, People Advisory Services, EY India, said, "NRIs are eligible to claim deduction up to specified limits for health insurance premium paid similar to Indian residents. The deduction can be claimed for the premium paid not only for self but also for parents, spouse and dependent children. However, such deduction is available only in relation to the premium paid towards the health insurance policies which are approved by the Insurance Regulatory and Development Authority of India (IRDAI). Apart from tax considerations, NRI should also consider other practical aspects while buying for a health insurance policy in India such as policy terms in relation to geographical areas covered, foreign exchange management regulations relating to settlement or repatriation of claims etc."

As per section 80D of the Income-tax Act, 1961, an individual (resident and non-resident) can claim a deduction of up to Rs 25,000 for premiums paid for the health insurance of self, spouse, and dependent children, including the expenditure of up to Rs 5,000 on preventive health check-up. An additional deduction of Rs 25,000 is available on the premium paid for the health insurance of parents aged up to 60 years. If the parents are above 60 years of age, then the additional deduction available is Rs 50,000 for premium paid for their health insurance.

If both the taxpayer and parents for whom the medical cover is taken for are aged more than 60 years, the maximum deduction that can be availed under this section is to the extent of Rs 1 lakh.

Section 80D of the Income-tax Act allows a deduction for preventive health check-up. Maximum deduction allowed is Rs 5,000 for the payment made on account of preventive health check-up of self, spouse, dependent children, father and mother. This deduction amount for preventive health-checkups is inclusive of the overall ceiling of the health insurance premium paid.

Preventive health check-up basically means those expenses which one incurs on preventive measures for early detection and safeguard against possible exposure to any disease in future. Also, the deduction on medical expenditure covers the expense incurred for treating existing diseases or ailments.

The below table gives an idea of deduction available in different scenarios
Scenarios Premium paid for self, family (Rs) Premium paid for parents (Rs) Total deductions under section 80D available (Rs)
Individual, family and parents below 60 years 30,000 35,000 50,000
Individual, family below 60 years but parents above 60 years 40,000 60,000 75,000
Both individual, family and parents above 60 years 60,000 70,000 1,00,000
Source: Deloitte India

Raote said, "NRIs who are liable to tax in India on Indian source income like property rental, interest income, dividend etc., can avail of this deduction to reduce their tax liability as well as to ensure healthcare for their family in India."

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