How to divide Health Insurance premium to claim deduction for more than 1 year

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While filing the Income Tax Return (ITR), Arup Sahay got confused while putting the amount of health insurance premium under section 80D. He had paid premium of over Rs 59,000 on the family floater policy for 2 years on January 2020, but the insurance company, in the 80D Certificate for the purpose of claiming tax benefits under section 80D, had divided the premium in 3 Financial Years (FY) – FY 2019-20, FY 2020-21 and FY 2021-22 – as the 2-year policy overlaps the 3 FYs.

Arup Sahay was, however, not amused, as, according to the 80D Certificate, he can claim tax advantage of less than Rs 20,000 in case the premium is divided in 3 Financial Years, whilst he can claim the full advantage of Rs 25,000 if the premium is divided in the 2 advantage years of the policy.

Section 80D offers that the single premium paid should be divided over the years for which the advantage of health insurance is available. As such, the premium would be divided over 3 years as technically 3 FYs are covered, stated Dr Suresh Surana, Founder, RSM India.

Explaining the rule of dividing premium of a multi-year health insurance policy, Dr Suresh Surana said, Finance Act 2018 provided the taxpayer to avail the advantage of the premium paid for multi-year health insurance policies to be allotted pro-rata over the policy term. As per the rule, in a case where premium for health insurance for more than a year has been paid in 1 year (i.e. single premium or lump sum premium paid for multiple years), the deduction shall be allowed proportionately over the years for which the benefit of health insurance is available.

As per the provisions of this section, there shall be allowed for each of the applicable Financial Year, a deduction equal to the appropriate fraction of the amount. Appropriate fraction means the fraction, the numerator of which is one and the denominator of which is the total number of relevant FYs covered under insurance.

For instance, if a single premium of Rs 30,000 is paid for a 2-years policy, then the taxpayer can avail a deduction under section 80D of Rs 15,000 per year. However, such quantity of Rs 15,000 would be again restrained to the maximum quantity of deduction which can be claimed under section 80D of the Income Tax Act, 1961, Dr Suresh Surana explained.

As the benefit of the health insurance policy of Arup Sahay was of 2 years and the subsequent premium will become due again in the 3 Financial Years mentioned in the 80D Certificate, he requested the insurance organization to reissue the Certificate, so that he may also claim the tax advantages in the 2 benefit years, rather of the 3 Financial Years without any confusion.

On his request, the insurance organization reissued the 80D Certificate mentioning the complete premium of the 2-years policy with the start and end date of the advantage period, which eliminated the confusion and Arup Sahay was capable to claim the maximum tax benefit of Rs 25,000 under section 80D on the 2-years policy for the Financial Year 2019-20.

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