Union Finance Minister Nirmala Sitharaman is likely to present the maiden Budget of Modi 3.0 government on July 24. In this budget, the insurance sector as well as middle-class taxpayers are hoping to see a much-needed raise in deduction limit on health insurance premium under Section 80D. The last time the government brought any changes in the 80D limit was in Union Budget 2015, so the expectations are high this time that the Centre might give some relief to taxpayers in the form of raise in deduction limits, including for 80D.
Taxpayers can claim tax deduction benefits under Section 80D when taking health insurance policies for themselves, their spouses, parents and dependent children.
What is the present Deductions limit under Section 80D?
Under Section 80D of the Income Tax Act, 1961, individuals and Hindu Undivided Families (HUF) get deduction benefits for health insurance premiums. This deduction limit is up to Rs 25,000 per financial year for individuals under 60 years of age. For senior citizens, this limit is up to Rs 50,000. In total, taxpayers can claim up to Rs 1 lakh in deductions under Section 80D.
Explaining why the government should increase the 80D deduction limit benefits, Pankaj Nawani, CEO, CarePal Secure, said that the past five years have seen a significant rise in healthcare costs across India, encompassing not just hospitalization expenses but also diagnostic tests, medical services, and medications.
“While health insurance acts as a social good, the current Section 80D deduction limit of Rs 25,000 falls short of adequately covering these escalating costs. This poses a challenge for taxpayers seeking tax relief for essential medical expenses,” he added.
Akhil Chandna, Partner, Grant Thornton Bharat, said that there has been no enhancement in these limits for the past many years, despite increasing medical treatment costs. “The current tax deduction limits often fall short in covering the premiums of a health insurance policy for a family. Heightened awareness about health these days has led to the increased demand for health insurance. Therefore, it is expected that the deduction limits will be revisited and enhanced in the upcoming budget.”
Nawani also suggested that in the upcoming Budget 2024, the government should consider a comprehensive strategy to address this disparity between rising medical costs and tax relief provided to taxpayers, particularly for the unorganized sector which includes domestic workers, drivers, and gig workers.
Nawani suggested a two-pronged approach to address this issue:
1. Increased Tax Relief for Individuals:
Raising the Section 80D deduction limit would provide much-needed tax relief for individuals and families struggling with rising healthcare costs.
2. Public-Private Partnership for Expanding Coverage in the Unorganized Sector:
Relying solely on government programs like Ayushman Bharat may not be enough. A public-private partnership can create a sustainable solution.
Funds allocated under Ayushman Bharat, when combined with employer contributions through matching grants, can be used to create a larger pool of resources. This pool can be used to provide subsidized private health insurance plans for the unorganized sector. This approach would ensure quality healthcare access while fostering a sense of self-reliance among the employees, moving them beyond sole dependence on government or employer support.