Health insurance deduction in new tax regime under Income Tax Act, 2025: What top experts expect

Section 80D of the Income Tax Act, 1961 (Section 126 of the Income Tax Act, 2025), allows taxpayers to claim deductions on health insurance premiums. This tax benefit is available only under the old tax regime. Meaning, you can claim this deduction only if you opt for the old regime.

As the Union Budget 2026 approaches, top experts have called for including the health insurance premium deduction in the new tax regime.

Here's a look at what they say

Suggestions by SBI Research

Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser at State Bank of India (SBI) suggests including either the health insurance deduction under the new tax regime or providing a separate deduction like National Pension System (NPS) for both term/health insurance under both regimes.

"In line with NPS deduction under 80CCD(1B), a separate deduction for Term/Health insurance in the new/Old tax Regime, say ₹25,000/50,000. Else, include 80D deduction in new tax regime," Dr Ghosh wrote in SBI Research's 'Prelude to Union Budget 2026-27' report.

Citing IRDAI's data, Dr Ghosh said, insurance penetration in India witnessed a drop to 3.7% in FY25, as compared to 4% in FY23 and 4.2% in FY22. Life insurance penetration also declined to 2.7% while non-life insurance remained at 1%.

"So, the decline in penetration is mainly due to the decline in life insurance penetration, which has raised concern to the IRDAI’s mission of ‘Insurance for all by 2047’," he said.

Dr Ghosh also suggests reforms in health insurance sector to ensure citizens do not have to struggle for receiving their claims.

"As per IRDAI, a significant rise in complaints during FY25 and around 69% of these grievances were related to claims. So, there is a need to reform the health insurance sector, as citizens sometimes struggle to receive their claims," he said.

What ICAI says

In their pre-budget memorandum, ICAI said, "In a time where medical security is of paramount importance, the non-availability of deductions for health insurance u/s 126 (section 80D of the 1961 Act) could discourage responsible financial planning for family health protection."

ICAI further said that "while the income-tax rates and slabs have been rationalized substantially over the last couple of years, there is no change in the surcharge threshold, which is also based on the total income."

Due to the non-availability of deductions and exemptions, total income under the default scheme would be higher in all cases.

• Deduction under section 126 for medical insurance premium or medical expenditure even under the new tax regime to encourage continued mediclaim coverage.

• Deduction under section 154 (section 80U of the 1961 Act) for an individual with disability and deduction under Section 127 (section 80DD of the 1961 Act) in respect of maintenance including medical treatment of a dependent disabled under new tax regime.

• Inflation-linked increase in deductions