Towards the end of the financial year, when you are running to meet your investment targets, it is common to make mistakes in selecting the right kind of investment products. And it is a common refrain. However, most of us are not aware that when it comes to tax-saving, even the mode of payment matters.
In this post, I will two such tax deductions where mode of payment can affect your tax benefit. You may not get the expected tax benefits if you make the payment in cash.
Cash Payment for Health Insurance Plans
You can get tax deduction up to Rs 25,000 towards health insurance premium for self, spouse and dependent children. The deduction goes up to Rs 30,000 if any of the insured persons is a senior citizen.
If you are paying health insurance premium for your parents, you can claim a further Rs 25,000 as deduction. If either of your parents happens to be senior citizen, the deduction limit goes up to Rs 30,000.
With the aforesaid limit (Rs 25,000 or Rs 30,000 as the case may be), you can include expenses for preventive health checkup up to Rs 5,000 per financial year.
So, if you are 35 and your parents are senior citizen, you can take tax deduction of up to Rs 55,000.
- Rs 25,000 for health insurance premium for self, spouse and children (including health checkup up to Rs 5,000)
- Rs 30,000 for health insurance premium for parents ( including health checkup up to Rs 5,000)
If you are a very senior citizen (>= 80 years) and have not purchased any health insurance, you can avail deduction for medical expenditure incurred up to Rs 30,000 per financial year. However, please note the total deduction that can be availed for health insurance, preventive checkup and medical expenses shall not exceed Rs 30,000. The same deduction can be taken for your parents too.
Must Read: Tax Benefits of Health Insurance
So, you can claim tax deduction for many aforesaid expenses under Section 80D of the Income Tax Act.
For you to claim aforesaid tax benefits under Section 80D, the payment needs to be made in any mode other than cash. There is just one exception. Payment for preventive health checkup can be made in cash.
So, if you are planning to purchase health insurance and claim tax benefit under Section 80D, make sure you make the payment through banking channel (cheque, debit card, credit card etc). If you make the payment through cash, you won’t get any tax benefit.
Please note your health insurance plan is still valid if you make the payment through cash. It is just that you won’t get any tax benefit.
Additional Read: 15 lesser known Income Tax deductions
Cash payment for donations under Section 80G
Various donations are eligible for deduction under Section 80G. The extent of deduction (50% or 100% of the donated amount) or any caps (with or without restriction) shall depend on the bodies/funds you are donating to. If the donation is made by cash, the tax benefit is limited to Rs 10,000 per financial year. So, if you have kept an eye on tax benefits while contributing to a cause, make sure you do not pay in cash.
Get your mode of payment right or you won’t get the expected tax benefits.
