Union Budget and Old Tax Regime: Finance Minister Nirmala Sitharaman is scheduled to unveil Union Budget 2025 on February 1, 2025, six months after presenting the full Budget 2024 in July. Taxpayers are eagerly anticipating possible reductions in tax rates and higher exemption limits. One of the key expectations is a rise in the benefits from Section 80C tax deductions.
Investing in specific financial instruments or making eligible expenditures can reduce taxable income for individuals, up to a maximum of Rs 1.5 lakh. Section 80C of the Income-Tax Act, 1961, is a commonly chosen option for taxpayers looking to save on taxes. This section encompasses various savings and investment options, including contributions to LIC and PPF.
What taxpayers are expecting?
Many taxpayers believe that the existing limit of Rs 1.5 lakh for investments in fixed deposits, ELSS, and housing loan principal is too restrictive. There is a proposal to increase the Section 80C deduction limit to Rs 2 lakh, which has not been adjusted since 2014. This change, if implemented, would enhance the appeal of the tax regime and provide taxpayers with additional deductions to benefit from. This proposal marks a decade since the last adjustment was made, during Finance Minister Arun Jaitley's tenure in Prime Minister Narendra Modi's first term.
“The upcoming Union Budget 2025 is likely to bring attention to key tax-saving provisions such as Sections 80C and 80D. Given the evolving financial landscape, there is a strong demand for increasing the deduction limit under Section 80C from the current Rs 1.5 lakh to Rs 2 lakh, which could encourage higher savings and investments in eligible instruments. Similarly, with rising healthcare costs, a relook at the deduction limit for health insurance premiums under Section 80D seems warranted,” said Niyati Shah, vertical head - Personal Tax at 1 Finance.
“A lot of anticipation is building up regarding probable changes in tax-saving schemes like Section 80C and Section 80D. Speculations are also high regarding the introduction of new provisions to aid emerging financial priorities such as green investments and digital initiatives. These would bring dual benefits: disposable income and aligning individual financial goals with the overall economic vision of sustainability and technological advancement,” said Rajesh Katoch, CEO, EZ Capital.
Section 80D
Section 80D aims at promoting the uptake of health insurance policies among individuals, especially as healthcare costs continue to rise and savings may not always be sufficient to cover medical expenses. By providing tax benefits, the government encourages more people to safeguard their health and financial well-being through insurance, thereby reducing the risk of falling into debt due to unforeseen medical costs.
According to Section 80D of the Income Tax Act, taxpayers have the opportunity to reduce their tax liability by claiming deductions on premiums paid toward health insurance policies. These deductions can be claimed for oneself, family (including spouse, children, and parents), and even for critical illness riders or policies.
For individuals below 60 years of age, a deduction of up to Rs 25,000 annually can be claimed, while for senior citizens, the limit is Rs 50,000 per year. Additionally, a deduction of Rs 5,000 is allowed for expenses incurred on preventative health check-ups.
Section 80D allows tax deductions for health insurance premiums. Presently, you can avail of:
Up to Rs 25,000 for premiums paid towards health insurance for yourself, your spouse, dependent children, or parents.
Up to Rs 50,000 if your family members or parents qualify as senior citizens (60 years of age or above).
Anup Rau, Managing Director and CEO of Future Generali India Insurance Company, noted the necessity of increasing the deduction limit under Section 80D. Despite a notable rise in healthcare expenses over the past decade, this limit has remained stagnant.
G Srinivasan, MD & CEO of Galaxy Health Insurance, said: "The Section 80D limits need to be increased to Rs 50,000 for all and Rs 1,00,000 for senior citizens. Moreover, this should be extended to the new tax regime to enhance insurance penetration."
"We recommend increasing the health insurance deduction to Rs 50,000 for individuals and Rs 1,00,000 for senior citizens. Including tax exemptions for contributions to Health Savings Accounts can help people manage rising healthcare costs," said Rajiv Gupta, President, PB Fintech.