Budget 2026 expectations: Is it time to revisit tax exemptions for senior citizens?

Nifty performance on Budget Day.

• Experts urge higher tax exemption limits for senior citizens in Budget 2026
• Rising medical costs and static tax rules strain retirees' finances
• Calls grow to update Section 80TTB and 80D limits for senior citizens

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As India’s senior citizen population, now over 14 crore, moves deeper into retirement, financial pressures are mounting. Rising healthcare costs, persistently low interest rates and limited social security support have reshaped retirement realities, yet tax provisions for seniors have seen little meaningful change over the years.

Despite the government’s steady push towards the new tax regime for its simplicity, the old tax regime continues to play a critical role for senior citizens. For retirees, expenses such as medical treatment, health insurance premiums and interest-driven income make deductions and higher exemption limits especially valuable.

One of the most frequently flagged concerns is the basic exemption limit of Rs 3 lakh for senior citizens, a threshold that has remained unchanged since Budget 2014. Over the past decade, everyday living and healthcare expenses have risen sharply, steadily reducing the real value of this exemption for those living on fixed incomes. Tax experts argue that focused relief, either through higher exemption limits or senior-specific measures, is both necessary and long overdue.

Rethinking the basic exemption limit

At present, the basic exemption limit stands at Rs 3 lakh for senior citizens and Rs 5 lakh for very senior citizens aged 80 and above. The category of very senior citizens was introduced under the Finance Act, 2011, which also raised the exemption limit for seniors from Rs 2.5 lakh to Rs 3 lakh. Since then, these thresholds have remained frozen, despite a significant rise in living costs.

According to experts, Budget 2026 offers a timely opportunity to address this long-standing anomaly.

Vijay Bharech, Partner at Deloitte India, says “these limits have stayed unchanged for several years even as living expenses have increased substantially. Revisiting the exemption threshold could provide real relief to retirees who depend primarily on passive income, while also easing compliance.”

A similar view is echoed across the financial services industry. Narendra Bharindwal, President of the Insurance Brokers Association of India, notes that “a phased and calibrated increase in exemption limits is overdue, especially for retirees reliant on savings and fixed incomes, and can be achieved without materially straining the tax base.”

Experts also point to an imbalance between the two tax regimes. Unlike the old regime, the new tax regime does not provide age-based exemption limits, a gap that often disadvantages senior citizens. Bharech adds that aligning or rationalising exemptions across both regimes could simplify tax filing while improving post-tax income for retirees.

Kirang Gandhi, a Pune-based financial mentor, highlights that “although the new tax regime offers a standard Rs 4 lakh exemption, it fails to account for the specific challenges seniors face. With higher healthcare spending and limited scope for income growth, a higher, senior-specific exemption, even within the new regime, would help preserve financial dignity in retirement.”

Revisiting TDS and interest income relief

Senior citizens aged 60 and above are currently eligible for a deduction of up to Rs 50,000 on interest income under Section 80TTB, covering earnings from savings accounts, fixed deposits and recurring deposits. However, experts argue that these limits were set in a very different inflation environment, when interest income played a smaller role in meeting retirement expenses.

“For most retirees, interest income is a financial lifeline, but the TDS framework and deduction limits have not kept pace with reality,” says Gandhi. He adds that raising the Section 80TTB cap to Rs 75,000 or even Rs 1 lakh could help prevent frequent tax deductions that disrupt monthly cash flows for senior citizens.

Separately, the TDS threshold under Section 194A has been increased to Rs 1 lakh, meaning banks do not deduct tax if interest income remains within this limit. However, Bharech of Deloitte India points out that “for seniors who rely heavily on deposit interest to meet routine expenses, Rs 1 lakh may still be insufficient.”

A higher threshold, experts believe, could reduce unnecessary TDS deductions and minimise refund-related hassles for retirees.

Aligning insurance deductions with medical inflation

Medical inflation in India is estimated at 12-14 percent annually, well above general inflation levels. Senior citizens are disproportionately impacted, making existing Section 80D deduction limits increasingly inadequate.

“Medical costs are rising much faster than overall inflation, and senior citizens bear the heaviest burden,” says Bharindwal. He adds that enhancing Section 80D limits, especially for seniors, would be a socially relevant and high-impact policy intervention.

There is also growing support for extending health insurance deductions to the new tax regime. Bahroze Kamdin, Partner at Deloitte India, says “health insurance premiums, including those paid for senior citizens, should qualify for deductions regardless of the tax regime chosen.” With hospitalisation and treatment costs remaining elevated and public healthcare coverage limited, targeted tax relief can play a meaningful role in retirement security.

Globally, several countries provide tax incentives for healthcare through deductions or credits. Kamdin adds that “introducing similar provisions in India could encourage wider insurance adoption while offering direct relief to retirees.”

Industry experts stress that if the government continues to promote the new tax regime, senior citizens should not lose access to essential medical-related tax benefits. Bharindwal suggests that “a pragmatic solution would be to introduce limited, senior-specific deductions within the new regime, particularly for health insurance or critical illness covers, without undermining its simplicity.”