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As India prepares for the Union Budget 2026, the insurance industry and taxpayers alike are hopeful for major reforms in income tax deductions on life and health insurance. Rising medical costs and inflation have reduced the real value of existing tax benefits, prompting industry experts to call for higher deduction limits and tax relief under both the old and new tax regimes.

Currently, most insurance-related tax benefits are available only under the old income tax regime, leaving taxpayers under the new tax regime without similar incentives. With insurance penetration still relatively low in India, expanding these benefits could play a key role in improving financial security and healthcare coverage.

Existing Tax Benefits on Health Insurance Under Section 80D

Under Section 80D of the Income Tax Act, taxpayers opting for the old tax regime can claim deductions on health insurance premiums.

Current Deduction Limits:

• Individuals below 60 years: Up to ₹25,000 for self and family

• Senior citizens (60+ years): Up to ₹50,000 for health insurance premiums

These deductions apply only if the taxpayer follows the old tax regime. Those opting for the new tax regime do not currently receive tax benefits for health insurance premiums.

Industry Demand: Increase Deduction Limits Due to Inflation

Insurance sector leaders believe the current deduction limits are no longer sufficient, considering the rising cost of healthcare and insurance premiums.

Subrata Mondal, Managing Director and CEO of IFFCO-TOKIO General Insurance, stated that health and life insurance tax deductions should be increased, potentially doubling the current limits. According to industry leaders, higher deductions would encourage families to opt for adequate insurance coverage, improving long-term financial stability and protection against medical emergencies.

Boosting tax incentives could also drive greater participation in health and life insurance, making insurance a more attractive financial planning tool.

Proposal to Extend Insurance Deductions to the New Tax Regime

Tax experts and financial analysts are urging the government to allow life and health insurance deductions under the new tax regime as well.

S. Shankar, Managing Partner at B Shankar Advocates, emphasized that offering insurance deductions in the new regime would help ensure that essential health coverage remains accessible to taxpayers choosing the simplified tax structure.

Currently:

• Old Tax Regime: Insurance deductions allowed

• New Tax Regime: No deductions for life or health insurance

If implemented, this reform could remove a major disadvantage of the new tax regime and provide taxpayers with greater flexibility in choosing between tax systems.

Life Insurance Tax Benefits Under Section 80C

Under Section 80C, taxpayers in the old regime can claim deductions of up to ₹1.5 lakh per financial year on eligible investments, including life insurance premiums.

Additional Benefit Under Section 10(10D):

• Maturity proceeds from eligible life insurance policies are tax-free, subject to conditions

However, like Section 80D, these benefits are not available under the new tax regime, limiting incentives for insurance-based savings among new-regime taxpayers.

GST and Input Tax Credit: Insurance Sector Seeks Resolution

Apart from income tax reforms, the insurance industry is also seeking clarity on Goods and Services Tax (GST) and Input Tax Credit (ITC) policies.

While retail life and health insurance policies have received GST relief to benefit policyholders, insurance companies face challenges because they cannot claim ITC on several business-related services such as:

• Customer support

• Distribution and agent services

• Technology infrastructure

• Operational and administrative costs

Industry stakeholders argue that the inability to claim ITC increases operational costs, which can ultimately affect premium pricing and profitability.

Why These Changes Matter for Taxpayers

If the government implements the proposed reforms in Budget 2026, taxpayers could benefit in several ways:

• Higher tax savings on insurance premiums

• Greater affordability of health and life insurance policies

• Improved financial and medical security

• Increased flexibility between old and new tax regimes

• Encouragement to invest in long-term protection plans

Expanding tax benefits could also lead to higher insurance adoption, helping families manage rising healthcare expenses and unexpected financial risks more effectively.

Outlook for Budget 2026: A Boost for Insurance and Financial Security

The upcoming Income Tax Budget 2026 presents an opportunity to modernize tax incentives in line with current economic realities. By increasing deduction limits, extending benefits to the new tax regime, and resolving GST-related ITC issues, the government could strengthen India’s insurance ecosystem while offering meaningful relief to taxpayers.

Such measures would not only improve financial protection for individuals and families but also support the long-term growth of the insurance sector and national economic resilience.