Budget 2024 Section 80D Exemption: Why govt should increase Section 80D tax exemption limit under old tax regime

Budget 2024 Section 80D Exemption: Why govt should increase Section 80D tax exemption limit under old tax regime

Section 80D of the Income-tax Act of 1961 allows for the deduction of certain medical expenses and premiums for health insurance policies from your taxes. The limit under section 80D has remained unchanged for the past several years. Taxpayers who have opted for the old tax regime are hoping for an increase in the limit under section 80D in the upcoming Budget scheduled for July 2024, considering the significant rise in healthcare costs.

Also read: Budget 2024 HRA Exemption: Will Bengaluru, Hyderabad, other non-metro cities be included in 50% HRA tax exemption list?

“India faces a severe issue with inadequate insurance. When a family’s primary earner passes away, the money left for the survivors to live and settle debts is usually less than nine percent of what’s actually needed. Changing tax sections 80C and 80D to provide separate tax breaks for the life-threatening risk part of term life plans could help close the gap in death risk coverage and enhance social security,” said Satishwar B., MD and CEO, Bandhan Life.

What is the current 80D limit?

Under Section 80D, medical insurance premiums for non-senior and senior citizens can be deducted from taxes up to Rs 25,000 and Rs 50,000. A Rs 5,000 deduction for costs incurred for prophylactic medical examinations is also included in this cap. The individual, spouse, and dependent children must pay the premium. An additional tax deduction can be claimed for parents’ health insurance premiums.

Do note that an individual will not be able to claim this deduction if one chooses the new income tax regime, i.e., this deduction can be claimed only if you opt for the old tax regime in a financial year.

Why should the Section 80D tax-deduction limit be increased in Budget 2024?

Health insurance, especially a family floater plan, is not just an expense, it’s an investment for life. It ensures long-term care for yourself and your family, providing a sense of security and preparedness for the future. While you can always increase the limit later, it’s important to remember that as you age, the cost of health insurance also increases. Therefore, the goal should be to secure health insurance coverage that will meet your future needs. This is why the maximum deduction that can be claimed by an individual under Section 80D varies between Rs 50,000 and Rs 1 lakh.

The insurance sector wants Budget 2024 to raise the present ceiling of Rs 25,000 under Section 80D, which only sometimes meets the average price paid for health insurance by many taxpayers of various ages.

Also read: Income tax relief: Budget 2024 may increase standard deduction under new income tax regime

“India is a price-sensitive market where consumers seek maximum value, making tax benefits a significant nudge towards purchasing health insurance. Besides financial protection, health insurance offers tax benefits under Section 80D, making it attractive from a savings perspective. The 80D tax exemption should be linked to inflation and revised periodically. Increasing the current limit of Rs 1 lakh for tax deductions would encourage more people to opt for health insurance. Currently, policyholders can claim deductions of up to Rs 25,000 for parents under 60 and Rs 50,000 for those over 60. Raising these limits to Rs 50,000 and Rs 1 lakh, respectively, would further incentivize health insurance for elderly parents. Tax exemptions should also extend to dependent family members like siblings. The 18% GST on health insurance premiums makes it expensive and hinders the inclusion of OPD benefits. Lowering the GST rate would support IRDAI’s vision of universal insurance coverage by 2047. The government should provide incentives and tax exemptions for companies to offer health insurance to employees, especially SMEs. Currently, India spends just over 2% of GDP on healthcare, which is low compared to similar economies. Increasing this to 3-5% of GDP would enhance our capacity to become the fastest-developing economy,” said Krishnan Ramchandran, MD & CEO, Niva Bupa Health Insurance.

How much tax is saved in Section 80D?

The amount of income tax that can be avoided by Section 80D is determined on the income tax bracket in which your taxable income falls. If an individual’s taxable income (after deducting Rs 25,000 under Section 80D) falls between Rs 2.5 lakh and Rs 5 lakh, the tax rate is 5%. The tax savings will be Rs 1,300 (including cess). Under the previous tax regime, individuals with taxable income of up to Rs 5 lakh were not compelled to pay zero tax.
Similarly, if the taxable income is between Rs 5 lakh and Rs 10 lakh, the tax saved for deduction of Rs 25,000 is Rs 5,200 (including cess). For the highest tax rate of 30%, the tax saved is Rs 7,800 (including cess).

Deduction on preventive health-check ups
Section 80D permits individuals to claim a Rs 5,000 tax credit for a preventative health check-up. This tax benefit is provided up to the maximum deduction limit of Rs 25,000 or Rs 50,000, as applicable. Thus, if an individual under the age of 60 pays a health insurance subscription of Rs 21,000, they can claim an extra benefit of Rs 4,000 for a preventative health check-up. Many diagnostic laboratories and hospitals provide preventative examinations for health.

However, if the health insurance premium is Rs 25,000, one cannot claim a preventative health check-up discount of Rs 5,000 or more.

Other things to keep in mind

Section 80D deductions can be claimed if health insurance premiums are paid electronically or digitally, such as via cheque, debit card, credit card, UPI, and so on. As a result, if a person pays his or her health insurance premium in cash, he or she will be unable to claim the tax advantage under Section 80D. However, cash payment is accepted for preventative health screenings. Aside from individuals, the Hindu Undivided Family (HUF) can claim a deduction under Section 80D.

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