Central Government Health Scheme (CGHS) and the Tax Benefit

A little known/ little used fact about section 80D of the IT Act is that it entitles the CGHS beneficiaries (Serving as well as Retired) to avail tax deduction. It applies to other similar recognised schemes also like ECHS.

The amount of contribution you make to the CGHS qualifies for deduction u/s 80-D from the taxable income subject to a maximum of Rs.25,000 per financial year (Rs.50,000 for senior citizens).

As per section 80D, an individual or an HUF, can claim deduction in respect of the following payments:

1. Any contribution made by the assessee, being individual, to Central Government Health Scheme (CGHS) or such other Scheme as may be notified by the Central Govt.
2. Medical insurance premium paid by the assessee, being individual/ HUF by any mode other than cash.
3. Sum paid by the assessee, being individual, on account of preventive health check-up subject to a maximum of Rs.5,000 (which is included in the overall limit).
4. Medical expenditure incurred by the assessee, being individual/HUF on the health of a senior citizen provided no amount has been paid to effect or to keep in force an insurance on the health of such person.

For serving Central Government employees residing in CGHS covered areas, obtaining a CGHS card is compulsory. The following deduction from the salary of the employee is made by the Department every month, depending upon his pay in the pay matrix of 7^th Pay commission:-

Contribution to be made by the Pensioners/ Family Pensioners is the amount that they were subscribing at the time of their retirement or at the time of death of the Government Servant.

Pensioners who want to avail CGHS facilities can make contribution either on yearly basis or one time (ten years) contribution for whole life validity. Thus, for life time membership of CGHS, AIS officers have to make a one time payment of Rs.1000 x 12 x 10 = Rs.1,20,000 whereas the annual membership contribution is Rs.1000 x 12 = Rs.12,000.

The contribution made entitles the Central Government employees, including their dependant family members residing in CGHS covered areas, and all the Pensioners of Central Government and their families to CGHS facilities. Thus, the membership fee paid covers not only the employee himself but also all the dependant family members.

Coming to the point of tax deduction u/s 80D, this is how the Officers can do their tax planning:-

• There is no problem for those making monthly/ yearly contribution of Rs.1000 x 12 = Rs.12,000. They can straightaway avail the full deduction u/s 80D as it is well within the upper limit of Rs.25,000 per year (Rs.50,000 for senior citizens).
• For Senior Citizen Pensioners making a life time contribution of Rs.1,20,000, it is a less beneficial proposition as they can’t claim deduction beyond the limit of Rs.50,000.
• But there is a way out if their spouse is also a tax assessee. As the contribution to CGHS provides for healthcare for both, they can both share the burden. The contribution can be split up between them both. Let the spouse meet 50% of the contribution by paying Rs.60,000 to CGHS. This can be done either by making two bank drafts of Rs.60,000 each (if CGHS accepts two DDs) or by one bank draft of Rs.1,20,000 after the spouse transfers Rs.60,000 to the bank account of the pensioner. This way, the pensioner and the spouse can both claim deduction of Rs.50,000 each from the taxable income u/s 80D. You, of course, still stand to lose the benefit of the remaining Rs.10,000 each.
• Full benefit can accrue if there are 3 tax assessee beneficiaries (employee, spouse and a dependent family member). In that case, the contribution can similarly be split up between them suitably, say @ Rs.40,000 each. This is well within the limit of Rs.50,000.

However, old retirees cannot claim the benefit u/s 80D at this stage. Only the following types of retirees can claim the deduction:-

1. Those who have retired recently or have become life time members of CGHS recently and have either yet to file Income Tax Return (ITR) or after filing the ITR, have still time to file the revised ITR.
2. Those who are not life time members of CGHS and are paying the membership fee on yearly basis, irrespective of the year of retirement.
3. Because of the coronavirus pandemic, the Government has extended the deadline for belated ITR and Revised ITR for FY 2018-19 from March 31, 2020 to June 30, 2020. Thus, the retirees who paid for life time membership of CGHS before 1.4.18 do not stand to benefit now. Those who retired between 1.4.18 and 31.3.19 can claim the deduction only till 30.6.20.
4. Those who retired after 31.3.19 have still time to claim the deduction in their ITR.