The Hindu Business Line : Mediclaim: A premium trouble

Unlike LIC premium and other payments under Section 80C, medi-claim premium should be paid out of taxable income only to claim the benefit of deduction.

Have you paid the premium on your mediclaim policy for the current year? Or, are you hesitating because the agent has informed you that a higher premium of Rs 14,512 shall be payable, whereas the maximum deduction allowed under Section 80D from the taxable income is Rs 10,000. Do not crib any longer. Insurance companies have been able to persuade the Finance Minister to increase the deduction for mediclaim premium from Rs 10,000 to Rs 15,000 from April 1, 2006 onwards. Mind you, this limit is cumulative and not per person. This deduction can be claimed for premium paid for self and spouse who may or may not be financially independent. Deduction is also available for premium paid for parents and children but only if they are financially dependent on the taxpayer. The requirement is not of minor children. The premium paid even for your 50-year-old son or daughter would qualify for deduction if he/she is dependent on you.

Pay independently

Thus, it is clear that if father, mother and son are working, they should pay their mediclaim premium separately to get the full benefit. The would-be bahu would also have to follow suit if she continues to work. But if she quits and becomes dependent on her husband, he would be entitled to deduction on the premium paid for her. The deduction in respect of LIC premium under Section 80C can be claimed by the father for his wife, son or even his married daughter as the requirement of dependence does not exist in this case.

A higher deduction up to Rs 15,000 (Rs 20,000 from the next year) can be claimed if at least one member in the family is a senior citizen. Besides an individual, even a Hindu Undivided Family (HUF), can claim deduction of mediclaim paid on the life of members of the family, subject to the overall limit. So, go ahead and pay the premium before the end of the financial year. But do not use the sale proceeds of the shares you sold recently or LIC maturity proceeds to pay the premium. Unlike LIC premium and other payments under Section 80C, mediclaim premium should be paid out of taxable income only to claim the benefit of deduction.

It may be March 30 or 31 and so you may decide to pay the premium in cash. Forget the benefit of deduction in this case as the premium must be paid only by cheque to claim deduction. What if you pay the premium through Internet banking, credit card or any other electronic means? Till the current financial year, payment by any such mode would not entail deduction from taxable income.

Welcome change

However, thankfully, from April 1, 2006 onwards the taxman has allowed payment by any means other than cash. A similar change has been made from the next financial year under Section 36 (1)(ib) so that even an employer can claim as expense the mediclaim premium paid for his staff, if the same paid otherwise than by cash.

This defies logic, as there is no such rider in the case of other eligible payments such as LIC premium, or purchase of National Savings Certificates. Moreover, payment is made to a government general insurance company or to a private insurer's scheme that has been approved by the Insurance Regulatory and Development Authority. If the government looks askance at such big corporations, what of the common man? Probably, we shall have to wait for a few more Budgets before payment of mediclaim premium even by cash shall be deductible for income-tax.

(The author is a Delhi-based chartered accountant.)

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