Budget 2024-25 should increase health insurance benefits under Section 80D, say experts

Experts and stakeholders are advocating for an increase in the deduction limit under Section 80D.

The limit of deduction under Section 80D of the Income Tax Act, 1961 for health insurance premiums was last enhanced nine years ago in the Budget 2015 from Rs 15,000 to Rs 25,000. Since then, there has been no increase in this limit.

As the Union Budget approaches, there is palpable anticipation regarding a potential increase in deductions under Section 80D for health insurance premiums. Experts believe that health insurance premiums have risen significantly over the past few years, and the current limit does not provide adequate deduction against premium payments for a large number of policyholders.

Current Scenario and Need for Change

Under the existing provisions of Section 80D, individuals below the age of 60 years can claim a deduction of up to Rs 25,000 for health insurance premiums paid for themselves, their spouse, and dependent children. An additional deduction of Rs 25,000 is available for insurance premiums paid for parents under 60 years of age, which increases to Rs 50,000 if the parents are senior citizens. This provision also includes a Rs 5,000 deduction for preventive health check-ups within the overall limit.

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Despite these deductions, the rising costs of healthcare and insurance premiums have made these limits seem insufficient. The COVID-19 pandemic has underscored the importance of robust health insurance coverage, with many families experiencing financial strain due to huge medical expenses. An increase in the deduction limits would provide significant relief to taxpayers and encourage more individuals to invest in comprehensive health insurance plans.

Expectations and rationales

Experts and stakeholders are advocating an increase in the deduction limit under Section 80D. It is suggested that the deduction for individuals be raised to Rs 50,000 from the current Rs 25,000. Similarly, the deduction for premiums paid for parents should be increased to Rs 75,000, with an even higher limit of Rs 1 lakh for senior citizens.

“Health insurance premiums have gone up and the need for much higher cover has become necessary. Hence, it is time to review the Rs 25,000 limit ( for tax deductions ) and make that Rs 50,000 for all categories instead of just for senior citizens,” said Suresh Sadagopan, founder, Ladder7 Financial Advisories.

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Sanjeev Govila, CEO of the financial advisory firm Hum Fauji Initiatives, have the similar view and said that, government should Increase the deduction limit to Rs 50,000 (Rs 1,00,000 for senior citizens) to act as enough incentive to take the insurance, alleviate the financial burden on taxpayers and ensure adequate health coverage.

However, Kapil Mehta, co-founder of SecureNow Insurance Brokers, believes there is a definite need to encourage the purchase of health insurance. If the government does not want to enhance the deduction limit, they might consider rationalising the Goods and Services Tax charged on insurance premiums. “Increasing deductions is one way but the tax environment has been steadily moving to lower and simplified deductions. That is something good as well. I feel a better way to prioritise health insurance is to reduce the GST from 18 percent to five percent or just do away with it. The impact to buyers will be similar to deductions,” said Mehta.

Experts and stakeholders believe that enhanced tax deductions would also serve as an incentive for more people to opt for health insurance, thus broadening the insurance base and reducing the financial burden on families during medical emergencies.