Saturday, March 17, 2012

Preventive Health care & Interest on Savings Account

Despite huge media coverage the Union budget received yesterday, there is a good chance that you might have missed a couple of good measures.

Many a times you might have heard from people: "Prevention is better than Cure." But, hardly do we see this implemented by people in India when it comes to Health care costs. Health care costs with respect to Health Insurance and Annual Health checkups. India has recently started warming up to the idea of buying an own health insurance policy (apart from the company health insurance policy) and it is yet to warm up to the idea of having an Annual Health check-up. The budget tries to warm up the psyche of Indian population by having a sub-deduction of 5K.

Section 80(D) was earlier only giving us a deduction for Health Insurance premiums. From FY12-13 it includes an amount of 5K for any preventive health care which would ideally include any medical tests undergone by you, spouse, children and dependent parents. Ideally a annual health check-up at a branded Health Check-up chain would cost around Rs.2500-3000 per head. Hence, this may be a very small amount for a family but when you compare with the current psyche of Indian population it will be a huge step if everyone can atleast utilize this 5K.

The other measure was related to the interest earned on the balance in savings account. This is good for 2 reasons.

A. Earlier, it was taxable under "Income from other sources" and effectively you should be paying tax on the interest at the highest rate applicable on your salary. Most of us are unaware of this section or neglect it, which says that you need to declare the interest earned on Savings/Recurring/Fixed deposits and pay tax on the same. Although this is a small amount, it might get you into trouble with the Income tax department in the future. Under this budget, it is exempted up to a Savings Account interest income of 10K. This gives you a small extra income and at the same time makes your life easier with respect to the filing under extra income related issues.

B. Last October, RBI has deregulated the interest rates earned on the balance in Savings account and we have seen a couple of mainstream banks offer a higher rates of 6-7%. But, this wouldn't have made much sense since, the interest is taxable and the final gain in hand might hardly differ between those banks paying you 4% and 6-7%. With the income exempted up to 10K, it might make sense to have a savings account that pays you 6-7% unless until the account features are bad enough.

The amounts saved under these two categories of Health and Interest income might be very small but, it goes in the right direction of long term financial and life planning.

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