The Hindu Business Line : Gaps in insurance cover for parents

The Finance Minister’s heart was at the right place when he announced substantial tax benefits for those taking mediclaim policies inuring for the benefit of parent(s), especially if they happen to be senior citizens.

Insurance companies have been looking askance at the old. And if at all they entertain them, it came at a price in the form of high premium which, of course, is understandable given the greater risks borne by the insurer.

Higher deduction

Till last year, one got under Section 80D a maximum of deduction of Rs 15,000 on mediclaim premium which limit was hiked to Rs 20,000 in case there was a senior citizen in the family covered by the mediclaim policy. The mediclaim policy contemplated was an omnibus one covering the assessee, his/her spouse, his/her dependant parents and his/her dependant children.

But with effect from the current financial year beginning April 1, 2008, parents supported by their children come for special consideration. The adjective ‘dependant’ has gone.

In the event, no vexatious enquiry can be made by the assessing officer (AO) as to whether the parent is dependant or not while making an assessment of an assessee. This is a good move. But what is not so good is the insistence on a separate policy for parent(s).

Separate policies

To be sure, the two separate policies beget two separate amounts — one for the family consisting of self, spouse and dependant children begets a maximum deduction of Rs 15,000, and the other inuring for the benefit of parent(s) begets a separate deduction up to a maximum of another Rs 15,000 thus conferring a maximum possible deduction of Rs 30,000 under Section 80D as against Rs 20,000 hitherto. An omnibus policy comes cheap despite the presence of old beneficiaries which is also the case with group insurance policies taken by companies.

A separate and additional policy for parent(s) could burden those who may have the mortification of losing to the insurer what they have gained from the taxman.

In addition, sub-section (4) of Section 80D has been shabbily drafted.

While a senior citizen’s parent would be a senior parent and hence the maximum limit for both the policies deserves the heightened relief of Rs 20,000 contemplated by it, it is not necessary that a senior-citizen parent’s son or daughter should also be a senior citizen.

In the event, the heightened relief of Rs 20,000 should not be made available for the policy taken for the benefit of the assessee and his family; instead it should be available only to the policy taken on senior-citizen parents.

Legislative intent

But the way the provision has been drafted, one gets the clear impression that even in cases where the assessee’s family does not contain any member who had attained the age of 65 or more at any time during the previous year, the deduction gets heightened to Rs 20,000 each for both the policies. This certainly was not the legislative intent.

The legislative intent as culled from the Explanatory Memorandum to the Finance Bill, as well as from the drift of Section 80D, is to give the heightened relief of Rs 20,000 only on policies where there is at least one beneficiary of the age of 65 or more.

(The author is a Delhi-based chartered accountant. Responses to blfeedback@thehindu.co.in)

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