How to Open a Health Savings Account (HSA): Online and Offline

Medical emergencies can occur at any time. So, we need to have a deposit that can be used whenever we are faced with some huge medical expenses, and that is where a health savings account comes in.

A health savings account is a savings account that holds your money for medical expenses along with lowering your taxable earnings.

Let’s delve into this article to get an understanding of HSA, how it works and so on.

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What Is a Health Savings Account?

A health savings account is a tax-advantaged savings bank account that combines the concepts of health and investment. It is a voluntary deposition account that the government looks after.

It is a very new concept in India that makes sure you get the best returns on your investments while you are paying for your major medical emergencies at the same time. You can use this fund to pay for doctor appointments or prescribed medications. Violating an HSA for a non-medical reason would incur a heavy fine and an income tax payment.

How Does a Health Savings Account (HSA) Function?

One can save money in HSA before paying their taxes and use it to pay for all their medical expenditures. An HSA ensures that you pay less tax on your earnings. HSA funds can be withdrawn at any time, provided it is for any medical emergency.

However, if the reasons stand out to be non-medical, you will have to pay a 20% income tax and a 20% penalty if you are under 65. Once you are over 65 years old, you can use the money for any reason.

What are the Eligibility Criteria to Open a Health Savings Account?

Before you rush to open your Health Savings Account in India, you need to tick off certain eligibility criteria, and they are:

You should be a permanent resident of India.
You should be between 21 and 55 years.
Either you should have a savings account in your chosen bank, or you need to have a recommendation from your employer for opening a health savings account.

How to Open a Health Savings Account (HSA)?

After going through the eligibility criteria, you might wonder about how to open a health savings account. You can open a HSA in the following two ways:

Online Process: As far as the online process is concerned, each bank has its online forms on their websites, which take less than 10 mins to fill up. Also, you should have an active personal email address to start with your account.
Offline Process: For the offline process, you need to gather all the required documents (discussed in the next part) and visit the nearest branch of your chosen bank. The bank employees will provide you with a form which should be filled up with your details, and you are good to go.

What are the Documents Needed to Open a Health Savings Account?

To open an HSA, you will need the following set of documents to go forward with the application:

Address Proof
Pan Card
Aadhaar Card
Passport-Sized Photograph

The customers are also required to maintain a minimum balance of ₹25,000 in their bank account.

What are the Benefits of a Health Savings Account?

By now, you've got a brief idea about an HSA and its working. Now, let’s look at some of its exclusive benefits:

Reduces Taxes: The money deposited in HSA reduces your taxable earnings, and hence you are entitled to pay less amount of taxes.
Reduces your Medical Expenditures: HSA funds can be used to pay for your medical insurance and eligible deductibles under this plan.
Additional Benefits in HSA: This account's best perk is earning tax-free interest. Also, if they remain unused, these funds roll over to the subsequent year. Lastly, you can spend these funds on healthcare or save them for the future.
Stay in Control: The whole decision on how to spend your money lies in your hands as the fund is all yours, and that too forever. The money has no expiry date, so you can take it with you when you change jobs or change over to another HDHP( high-deductible health plan).
Works as Savings after Retirement: After you have crossed the age of 65, the HSA funds can be retrieved from your account even if there is no medical cause. This money continues to be exempted from the tax and without penalty.

A health savings account is a special account that will pay for all medical expenses, even those usually not covered by any health insurance. It works just like a normal savings account, along with some rules and some additional benefits.

FAQs about Health Savings Accounts (HSA)

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Do I have to pay tax on the money that I withdraw from my HSA?

No, you don’t have to pay any tax on the amount of money that you take out from your HSA as long as it is done for any medical reason.

How do I access my HSA funds?

There are two options to access your HSA funds:

HSA Central Debit Card
Digital Wallet

What is the daily withdrawal limit for HSA?

The daily withdrawal limit for HSA is ₹41,630.

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