How Budget 2025 Can Reduce Your Tax Burden by Increasing Section 80D Limits for Health Insurance
The Union Budget 2025-26, to be presented by Finance Minister Nirmala Sitharaman, is expected to introduce tax reforms that could ease the financial burden on taxpayers. One of the most anticipated changes is the revision of section 80D, which provides health insurance tax benefits to individuals and families. As healthcare costs continue to rise, many experts believe that increasing the deduction limits under section 80D is necessary to ensure that people can afford adequate health insurance coverage while also reducing their taxable income.
Currently, India’s medical inflation stands at 14%, making it one of the highest in Asia. Despite the increasing costs, the deduction limits under section 80D have not been revised since 2015. This has led to growing concerns among policyholders and industry experts who believe that the upcoming budget must prioritise health insurance tax benefits to encourage more people to invest in better coverage.
Current health insurance tax benefits under Section 80D
Under section 80D, taxpayers can claim deductions on health insurance premiums paid for self, spouse, dependent children, and parents. The existing limits are:
- Individuals below 60 years: Up to Rs 25,000 per financial year.
- Senior citizens (above 60 years): Up to Rs 50,000 per year.
- Additional deduction for parents: If an individual below 60 years pays for their senior citizen parents’ health insurance, they can claim an additional Rs 50,000, bringing the total deduction to Rs 75,000 per year.
- Senior citizens paying for themselves and their parents: Eligible for Rs 50,000 for self and Rs 50,000 for parents, totalling Rs 1,00,000 in deductions annually.
- Preventive health check-ups: An additional Rs 5,000 can be claimed within the overall limits.
While these provisions offer financial relief, they are no longer sufficient given the rising cost of medical care. Increasing the limits under section 80D could significantly improve the affordability of health insurance for middle-class families.
Why section 80D limits should be increased in budget 2025
Rising medical inflation
Healthcare costs in India are rising faster than general inflation, making it harder for individuals to afford quality medical care. Increasing the deduction limits under section 80D would provide much-needed financial relief to taxpayers struggling with higher health insurance premiums.
Low health insurance penetration
According to IRDAI, health insurance penetration in India was only 3.7% of GDP in 2023-24, significantly lower than the global average of 7%. Many people hesitate to purchase health insurance due to high premiums and limited tax incentives. Raising the deduction limits could encourage more individuals to invest in better coverage, reducing out-of-pocket medical expenses.
No revision in deduction limits since 2015
The last increase in section 80D deductions was made in 2015 when the limits were raised from Rs 15,000 to Rs 25,000 for non-senior citizens and from Rs 30,000 to Rs 50,000 for senior citizens. Since then, healthcare costs have increased dramatically, making it essential for the government to reassess the deduction limits.
High GST on health insurance premiums
Currently, health insurance premiums are subject to an 18% GST, adding to the financial burden on policyholders. Industry experts have urged the government to reduce the GST rate or remove it for basic coverage. A reduction in GST, along with an increase in health insurance tax benefits, would make policies more affordable for a larger section of the population.
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Proposed changes in section 80D deductions
Experts suggest the following revisions to align with rising healthcare expenses:
- Increase the deduction limit for individuals below 60 years from Rs 25,000 to Rs 50,000.
- Increase the deduction for those paying for non-senior citizen parents from Rs 50,000 to Rs 75,000.
- Allow senior citizens a deduction of up to Rs 1,00,000 instead of the current Rs 50,000.
- Extend enhanced deduction limits to taxpayers opting for the new tax regime to encourage wider adoption of health insurance.
- Reduce GST on health insurance premiums from 18% to 5% for policies up to Rs 5 lakh, or ideally remove it altogether.
Impact of increasing health insurance tax benefits
Financial relief for taxpayers
Higher deductions under section 80D would help taxpayers reduce their taxable income, allowing them to save more money. This would especially benefit middle-class families who struggle to afford comprehensive health insurance coverage.
Encouragement for higher coverage
Many individuals opt for minimal health insurance coverage due to high premiums and inadequate tax benefits. Increasing the deduction limits could encourage policyholders to invest in better plans, ensuring better financial security in case of medical emergencies.
Boost to the health insurance sector
Higher tax incentives could lead to greater adoption of health insurance, driving growth in the sector. A larger insured population would also reduce the burden on public healthcare facilities, improving overall healthcare accessibility in India.
Challenges in implementation
Revenue loss for the government
Increasing health insurance tax benefits and reducing GST on premiums may lead to short-term revenue loss for the government. However, the long-term benefits, such as improved healthcare accessibility and reduced reliance on government-funded medical schemes, outweigh the immediate fiscal impact.
Ensuring awareness among taxpayers
Many individuals are unaware of the deductions available under section 80D. The government needs to launch awareness campaigns to educate citizens about health insurance tax benefits and encourage them to take advantage of these deductions.
Conclusion
As the Union Budget 2025 approaches, revising section 80D deduction limits and reducing GST on health insurance premiums should be key priorities. These changes will not only provide financial relief to taxpayers but also improve health insurance penetration across the country. By making health insurance tax benefits more attractive, the government can take a crucial step toward ensuring better healthcare affordability and financial security for millions of Indians.
