Top Mistakes to Avoid When Claiming Tax Benefits of Health Insurance

Health insurance isn’t just a tool for financial protection against medical emergencies — it’s also a clever way to reduce your taxable income. Under Section 80D of the Income Tax Act, individuals and families can claim deductions on the premiums paid towards health insurance policies. However, while the rule itself is fairly straightforward, many people either miss out on the full benefits or make errors that result in disallowed claims.

Whether you're insuring yourself, your family, or your parents, understanding how the tax benefits of health insurance work — and more importantly, what not to do — is essential. Many taxpayers lose potential savings simply because they don’t take the time to plan or understand the nuances.

Let’s look at some of the most common mistakes made while claiming health insurance tax deductions — and how you can avoid them.

1. Paying Premiums in Cash

One of the most frequent errors is paying the insurance premium in cash. According to tax laws, to be eligible for a deduction under Section 80D, the premium must be paid through a traceable method — such as debit card, credit card, internet banking, UPI, or cheque.

The only exception is for preventive health check-ups, where a deduction of up to ₹5,000 is allowed even if the payment was made in cash. But for all other premium-related claims, cash payments disqualify you from receiving the tax benefits of health insurance — no matter how much you paid.

To stay compliant, always choose digital or banking channels, and retain proof of payment for your records.

2. Incorrectly Claiming for Non-Dependent Family Members

Many people assume they can claim deductions for health insurance premiums paid for siblings, in-laws, or extended family. However, Section 80D strictly allows deductions only for premiums paid on policies covering:

• Self

• Spouse

• Dependent children

• Parents (irrespective of dependency)

So, if you’ve taken a policy for a brother or an adult working child, you won’t be able to claim any tax deduction, even if you paid the premium. When choosing the best mediclaim policy, ensure that you are only insuring family members who qualify for Section 80D benefits — especially if tax savings are part of your decision-making.

3. Not Accounting for Age-Based Limits

Section 80D provides different deduction limits depending on the age of the insured:

• ₹25,000 for individuals below 60

• ₹50,000 for senior citizens (60 or older)

This applies separately for self/family and parents. So, if you're under 60 and paying for your senior citizen parents' insurance, you can claim ₹25,000 for yourself and ₹50,000 for them — totalling ₹75,000.

A common mistake is assuming a flat ₹25,000 limit across the board, which results in lower deductions being claimed. If you’re purchasing or renewing a policy for your parents, make sure you’re factoring in their age correctly to unlock the higher limit.

This becomes especially relevant when comparing the best health insurance options, as senior citizen plans often come at a higher cost — but also provide greater tax relief.

4. Overlooking Preventive Health Check-Up Deductions

Preventive health check-ups are increasingly recommended for early detection of lifestyle conditions and general well-being. Unfortunately, many policyholders forget that expenses up to ₹5,000 for such check-ups can also be claimed under Section 80D — even without an active health insurance policy.

This amount is not over and above the standard deduction limits — it is included within the ₹25,000 or ₹50,000 cap. But it’s still money saved, and ignoring it is like leaving part of your tax refund on the table.

Make it a habit to schedule annual check-ups and retain the payment receipts. Many of the best mediclaim policy providers now bundle free check-ups into their plans — a bonus that helps you both stay healthy and reduce your tax bill.

5. Mixing Up Premium Payments and Claim Periods

Some people pay premiums in advance for multiple years and then claim the full amount in one go. But Section 80D only allows the premium amount paid for the current financial year to be deducted — not for future years, even if the payment is already made.

Similarly, if you're paying instalments, only the amount paid during the financial year counts. Always match your payment period with your tax planning window to ensure you're not over- or under-reporting your eligible deductions.

This issue can be avoided by working with an insurer that provides flexible policy durations and timely premium receipts. The best health insurance companies offer clear documentation and tax certificates, making it easier to claim deductions accurately.

6. Not Keeping Records

Documentation is key when it comes to tax deductions. If you can’t produce valid proof of payment or policy details during a tax audit, your deduction could be rejected.

Always keep:

• Premium payment receipts

• Health policy documents showing the insured members

• Proof of age (for senior citizen claims)

• Receipts for preventive health check-ups

Digitally storing these records is a good habit, especially since most insurers now provide downloadable tax certificates and e-policy documents.

Those opting for the best mediclaim policy often receive automated tax receipts and reminders — features that take the guesswork out of documentation.

7. Choosing the Wrong Policy Type

Not all health insurance policies are eligible for tax deductions. For example, travel insurance or critical illness riders purchased separately from a health plan may not qualify under Section 80D.

Additionally, not all family floaters are tax-efficient — especially if they include senior citizens. Including your parents in a floater with your spouse and children could limit your deduction eligibility. In such cases, it might be more beneficial to buy separate policies.

The key is to align your insurance decisions with your tax-saving goals. Choosing the best health insurance involves more than comparing premiums — it’s about making sure the plan supports both health needs and financial goals.

In Conclusion

Claiming the tax benefits of health insurance can lead to significant savings — but only if done right. From ensuring that payments are made correctly to structuring your policies in a tax-efficient manner, there are several areas where attention to detail can pay off handsomely.

By avoiding common pitfalls such as paying premiums in cash, overlooking senior citizen benefits, or failing to document expenses, you can maximise both your cover and your deductions. Choosing the best mediclaim policy not only helps during medical emergencies but also ensures you're not losing out on valuable tax relief.

If you’re looking for a health insurance partner that offers transparency, robust coverage, and proactive customer support, Niva Bupa stands out as a leading choice. As one of the best health insurance providers in the country, Niva Bupa offers comprehensive policies designed for families, individuals, and senior citizens alike — giving you peace of mind and helping you stay tax-smart year after year.