When a health insurance payout is credited to your account and you notice a deduction labeled as TDS, it can be both unexpected and confusing. Many salaried individuals and policyholders face this situation, especially when the payment is routed through an employer or processed as a reimbursement. Understanding the process of Claiming TDS Refund on Health Insurance Payout is key to knowing when such deductions apply, whether they can be recovered, and how to go about getting your money back.
Why is TDS Deducted on Health Insurance Payouts?
Under normal circumstances, TDS (Tax Deducted at Source) isn’t applicable to health insurance reimbursements made to the policyholder. However, when the insurance payout is made to a hospital on behalf of an employee by the employer or insurer, the nature of the transaction may trigger TDS under Section 194J or 194R of the Income Tax Act.
This mostly happens in cases involving:
- Employer-paid group medical insurance
- Cashless claims processed through TPAs (Third Party Administrators)
- Reimbursement to hospital directly on behalf of employees
In such cases, questions arise: Is TDS deductible on reimbursement? or TDS on payment to hospital for employee medical treatment, and the answer is, it depends on how the transaction is structured.
Can the Deducted TDS Be Refunded?
Yes, if TDS has been deducted erroneously or unnecessarily from your insurance payout, you may be eligible to claim a refund. However, to do this, you need to ensure that:
- The income was not taxable in the first place, and
- You file your Income Tax Return (ITR) declaring the correct details.
One of the most common queries is Can health insurance be refunded? While the policy itself cannot be refunded unless cancelled, TDS deducted on health-related payouts may be refunded through proper filing.
According to LiveMint.com, a taxpayer was able to successfully claim TDS refund by showing the amount as exempt in the ITR and attaching a CA certificate.
How to Claim TDS Refund Online
Filing your return is the only official way to recover excess TDS. Here’s how:
Steps to Claim Refund:
- Log in to the Income Tax e-filing portal.
- Download Form 26AS from the TRACES portal to check TDS details.
- File your ITR using accurate values (ensure the insurance payout is classified as exempt).
- If required, attach a Chartered Accountant certificate under Rule 37BA to validate that the income isn’t taxable.
- Submit the return and track the refund status.
Here’s a quick snapshot of how to tackle different TDS deduction scenarios:
| Situation | TDS Deducted? | Can You Claim Refund? | Action Needed |
| Cashless mediclaim to hospital via employer | Yes | Yes | File ITR and declare as exempt |
| Insurance payout credited directly to you | Rare | Possibly | Check Form 26AS, file ITR |
| Reimbursement processed by company | Sometimes | Yes | CA certificate may be needed |
| Medical premium paid by employer | No (if not income) | NA | Declare under exempt allowances |
| Previous year’s TDS on insurance | Yes | Yes | File belated/revised ITR |
How to Claim Refund of Excess TDS Paid by Deductor
In some cases, TDS is deducted due to a technical or misclassification error. The deductor (e.g., the employer or insurer) is allowed to file a correction, but if they don’t, the onus is on you to claim it. This is where many users search How to claim TDS refund in Traces? but remember, TRACES is only for viewing; actual refunds are processed through ITR filing.
Recent updates in ITR forms for AY 2025–26 now allow better categorization of exempt income, making it easier to reflect such cases. As India Today highlighted, the new income tax bill aims to simplify disclosures for salaried taxpayers and remove ambiguity in such refunds.
Additional Scenarios You Should Know
- TDS on medical insurance premium paid by the company is usually not applicable, unless treated as a prerequisite.
- How to get TDS refund on salary is a separate process, but similar in method: file ITR and declare excess tax paid.
- How to claim TDS refund of previous years is still possible if the timeline permits; use belated or revised returns with proper justification.
Conclusion
If you’ve ever wondered about TDS deducted on a health insurance claim and how to recover it, the key lies in timely ITR filing, understanding exempt income, and correctly classifying your insurance payouts. With improved tax filing systems and clearer reporting formats, the process of Claiming TDS Refund on Health Insurance Payout has become more accessible and efficient for taxpayers.
