Mediclaim premium and Income Tax

Anubha is a young IT professional working in Bangalore for last 2 years. Like many of her colleagues, she also opted for insurance. Insurance is a smart tool for Investment and risk cover.

She called an executive from near by Insurance company office. She opted for most popular insurance product which gives life cover and investment in equity fund. Moreover, she also opted for critical illness rider.  In the event of diagnosis of a critical illness, this rider gives an amount equal to the coverage amount opted for to the insured.

Here is her Policy and Insurance premium details

Coverage	Amount	Term	Premium	IT benefit
Life cover	10,00,000	25 years	11,290	Sec 80 C
Critical Illness	2,00,000	25 years	3,500	Sec 80 D

In the month of January, the Accounts department has asked for investment proof.

She request for an premium payment receipt and she received the receipt with following details

• Face Amount: Rs 10,00,000.00
• Effective date: 02 May 2007
• Premium Amount Rs. 14,790.00
• Service Tax: Rs. 1,523.37
• Total Premium Paid: Rs. 16,313.37

With no knowledge of Income Tax Anubha submitted this to Account department. There is an error from Insurance Company in issuing the premium payment receipt. They didn’t bifurcate the amount of Life cover and Critical Illness. As shown in Table 1. Life cover premium paid is covered under Sec 80 C deduction. On other hand Critical Illness premium paid is covered under Sec 80 D deductions.

Anubha could have claimed total deduction of Rs 115,000 i.e. Rs 100,000 in Sec 80 C and Rs 15,000 in Sec 80 D. But due to this error she will not be able to claim deduction under section 80 D. this will result into higher payment of Tax.

All should look at their premium payment receipt carefully. Any premium paid towards the riders like Critical illness, Income continuation, Premium payment waiver, Accidental death should be shown separately to claim it benefit.