Deductions in Budget 2015 Will Make Senior Citizens Happy

(As Published in Economic Times on March 2, 2016)
Salaried taxpayers must be delighted by the increase in tax saving investment limit announced in the budget. But the Rs 50,000 to be invested in the National Pension System under Section 80CCD will not be meaningful for those above 60. Seniors citizens hoping for a higher exemption and investment limits would have been disappointed by Arun Jaitley’s second budget. Last year, the basic exemption for senior citizens had been hiked from Rs 2.5 lakh to Rs 3 lakh, but the limit had remained unchanged for very senior citizens (above 80 years).
Even so, this year’s budget also has some senior friendly measures. While there has been no change in the exemption limits, certain deductions have been enhanced. The biggest change is the Rs 10,000 hike in the deduction limit for health insurance premium under Section 80D. The Rs 10,000 hike may not be very useful for younger buyers who do not pay a very high premium for health cover.
For a 30 year old, a regular Rs 10 lakh indemnity plan will cost around Rs 7,000, while a comprehensive coverage with no-sub-limits and sum insured restoration benefits costs around Rs 10,000. Even special plans, such as the Diabetes Safe from Star Health Insurance, will cost a 30-year-old only Rs 17,000 a year. So, the additional Rs 10,000 will not really make a material difference, unless you buy add-on covers for critical illnesses and hospital cash benefit.
But the premium for senior citizens is quite high. At 60, a buyer, has to shell out about Rs 20,000-25,000 for a Rs 10 lakh nofrills health cover. The cost is higher at Rs 25,000-28,000 for someone aged 65. A comprehensive coverage costs close to Rs 30,000-35,000. A special diabetes cover can cost up to Rs 50,000-60,000 a year. So, the hike in deduction from Rs 20,000 to Rs 30,000 in budget will be useful.
The deduction under Sec 80D is also available to taxpayers who buy health insurance for their parents. If you include your parents in your family floater plan, the deduction limit goes up to Rs 50,000 (Rs 25,000 + 25,000). If even one of them is a senior citizen, the deduction limit will be 55,000 (Rs 25,000 + 30,000).
Senior citizen taxpayers can maximize the tax deduction when they buy a floater cover. A cover for a senior citizen couple is around 35,000-40,000 a year. In case premium is very high and both spouses have income, it will be wise to buy separate covers. This will not only give them better coverage but will help them save more tax as the deduction limit will go up to Rs 60,000.
“Under tax laws, the proposer, or the person who pays the premium, of the policy gets the deduction. So, unless you buy separate covers for yourself and spouse the deduction limit stays at Rs 30,000,” says Sudhir Kaushik, CFO and Co-founder, Taxspanner. But this should be done only if both spouses have taxable income. Otherwise, a simple floater cover might be more beneficial.