Tax Liability and Medical Insurance Decision for a Salaried Individual
Mr. Anirban Sen, aged 45 and resident in India, has the following data for the year (old tax regime): basic salary ₹8,00,000; dearness allowance ₹2,00,000 (fully taxable); professional tax paid ₹2,500. He owns a let-out flat with rent received ₹3,60,000; municipal taxes paid ₹20,000; interest on housing loan ₹2,50,000. Other income: fixed deposit interest ₹40,000, savings bank interest ₹12,000 and dividend ₹10,000. He has invested ₹1,50,000 in PPF and paid ₹25,000 for medical insurance of himself and his family. His parents, both senior citizens, are not covered. He wants to know his tax liability and whether an additional ₹50,000 medical policy for his parents is worth taking. Assume no surcharge and health and education cess at 4%.
1. Compute Mr. Sen’s total income and tax liability under the old tax regime.
Read the worked answer
Salary income
| Item | ₹ |
|---|---|
| Basic salary | 8,00,000 |
| Dearness allowance | 2,00,000 |
| Gross salary | 10,00,000 |
| Less: standard deduction | (50,000) |
| Less: professional tax | (2,500) |
| Net salary | 9,47,500 |
House property
| Item | ₹ |
|---|---|
| Rent received | 3,60,000 |
| Less: municipal taxes | (20,000) |
| Net annual value | 3,40,000 |
| Less: 30% standard deduction | (1,02,000) |
| Less: interest on housing loan | (2,50,000) |
| House property loss | (12,000) |
Other sources
FD interest ₹40,000 + savings bank interest ₹12,000 + dividend ₹10,000 = ₹62,000. Less 80TTA on savings bank interest ₹10,000 = ₹52,000.
Gross total income = ₹9,47,500 − ₹12,000 + ₹52,000 = ₹9,87,500.
Chapter VI-A deductions: 80C ₹1,50,000 + 80D ₹25,000 = ₹1,75,000.
Total income = ₹9,87,500 − ₹1,75,000 = ₹8,12,500.
Tax: 5% of ₹2,50,000 = ₹12,500; 20% of ₹3,12,500 = ₹62,500; total ₹75,000. Cess 4% = ₹3,000. Tax liability = ₹78,000.
2. He is considering an additional ₹50,000 medical policy for his senior-citizen parents. Compute the tax saving and advise him.
Read the worked answer
The existing 80D deduction of ₹25,000 is for himself and his family. An additional premium for senior-citizen parents qualifies under 80D up to ₹50,000. His total 80D would become ₹75,000, but this is within the separate limits of ₹25,000 for self/family and ₹50,000 for parents.
Revised deductions = ₹1,50,000 + ₹25,000 + ₹50,000 = ₹2,25,000.
Revised total income = ₹9,87,500 − ₹2,25,000 = ₹7,62,500.
Tax = ₹12,500 + 20% of ₹2,62,500 = ₹12,500 + ₹52,500 = ₹65,000. Cess 4% = ₹2,600. Tax = ₹67,600.
Tax saving = ₹78,000 − ₹67,600 = ₹10,400, which is 20.8% of the ₹50,000 premium (20% slab + 4% cess).
Advice: the tax saving is real but the policy should be bought for the risk cover, not merely the deduction. If the parents are uninsured and the premium is affordable, the net cost after tax is ₹39,600 and the medical cover is valuable. If the policy has poor coverage or the family already has adequate cover, the tax saving alone does not justify it.
3. What would change if the house property loss were ₹2,50,000 instead of ₹12,000?
Read the worked answer
A house property loss can be set off against other heads in the same year only up to ₹2,00,000. The excess is carried forward for up to eight assessment years and can be set off only against future house property income.
If the loss were ₹2,50,000:
- Allowed set-off against salary and other income = ₹2,00,000
- Disallowed and carried forward = ₹50,000
- Gross total income = ₹9,47,500 + ₹52,000 − ₹2,00,000 = ₹7,99,500
- Less Chapter VI-A deductions ₹1,75,000
- Total income = ₹6,24,500
Tax = ₹12,500 + 20% of ₹1,24,500 = ₹12,500 + ₹24,900 = ₹37,400; cess 4% = ₹1,496; tax = ₹38,896.
The key judgment is that the full ₹2,50,000 cannot be deducted against salary. The unabsorbed ₹50,000 is not lost, but its benefit is deferred and restricted to future house property income.