For taxpayers who continue to stay in the old tax regime, one complaint they have had in every budget season is that most popular deductions have remained frozen. Sections such as 80C, 80D and home loan interest benefits still operate with limits set a decade ago, even as incomes, medical costs and housing prices have moved sharply higher.
With Budget 2026 around the corner, the debate has once again intensified on whether the government should finally revisit these deductions — or continue nudging taxpayers toward the new tax regime that does away with exemptions altogether.
Why old tax regime deductions feel outdated today
The old tax regime was designed around savings-linked incentives. Deductions under Section 80C encouraged long-term investments, while Section 80D rewarded health insurance coverage and home loan benefits supported housing ownership. However, most of these limits were last revised between 2014 and 2015.
As CA Dr. Suresh Surana explains, “Key personal tax deductions under the Income-tax Act, 1961 most notably Section 80C, Section 80D, and housing loan–related benefits under Sections 24(b) and 80EE/80EEA have remained majorly unchanged for several years, despite rising incomes, inflationary pressures and higher costs of living.”
He adds that this has reduced their real value as effective tax-saving tools.
Section 80C: Rs 1.5 lakh limit unchanged since 2014
Section 80C remains the most widely used deduction, covering provident fund contributions, life insurance premiums, ELSS investments, tuition fees and principal repayment of home loans. Yet, the Rs 1.5 lakh cap has not changed since the Finance Act, 2014.
According to Surana, “this ceiling no longer reflects the increased cost of long-term savings, retirement planning and education expenses, particularly for middle-income households.”
He suggests that Budget 2026 could consider raising the limit to Rs 3 lakh or linking it to inflation to restore its relevance.
Section 80D: Health insurance deduction lagging medical inflation
Health insurance premiums have risen sharply over the past decade, especially after the pandemic. However, Section 80D still allows a maximum deduction of Rs 25,000 for self and family and Rs 50,000 for senior citizens — limits last revised in the Finance Act, 2015.
Surana points out that “considering the sharp rise in medical inflation and insurance premiums, these limits appear inadequate.”
An upward revision, he says, could encourage wider health insurance coverage and reduce out-of-pocket medical expenses for families.
Home loan interest deduction stuck at Rs 2 lakh
For homeowners, the deduction for interest on a self-occupied property under Section 24(b) remains capped at Rs 2 lakh — a limit also last revised in 2014. This is despite property prices and home loan sizes rising significantly across cities.
While additional deductions under Sections 80EE and 80EEA were introduced for first-time buyers, these were time-bound and subject to strict conditions, limiting their reach.
Surana suggests that “the Rs 2 lakh ceiling could be linked to the increase in stamp duty reckoner value or such other measurable property benchmarks” to better align the benefit with current housing market realities.
Why the government has avoided revisiting old regime deductions
Despite repeated demands, the government has shown little inclination to enhance old regime deductions in recent budgets. The reason is structural — policy intent has clearly shifted toward the new tax regime, which offers lower rates but removes exemptions and deductions.
Over 80% taxpayers have already migrated to the new regime, and further expansion of old regime benefits could slow this transition. Budget 2026 is therefore expected to maintain this direction, even as pressure mounts from taxpayers who still rely on deductions for tax planning.
Whether the government chooses to finally update these long-pending limits or lets them gradually fade into irrelevance will be one of the key tax signals to watch in Budget 2026.