📊 What’s the Big Picture for Income Tax in Budget 2026

As India’s Union Budget 2026-27 approaches (to be presented on February 1, 2026 by Finance minister Nirmala Sitharaman), taxpayers and industry groups have outlined several expectations for tax relief and deduction reforms. These focus on simplifying the tax system while offering more support to middle-class income earners.

🧾 Life & health Insurance Deductions: Why They’re in Focus

📌 Current Tax Regime Situation

Life insurance premiums are currently deductible under Section 80C (combined with other eligible investments) up to ₹1.5 lakh per year.

Health insurance premiums qualify for deduction under Section 80D — normally up to ₹25,000 (or ₹50,000 for senior citizens).

However, these deductions are only available under the old tax regime and not allowed under the new tax regime.

This difference has led many taxpayers — especially salaried individuals and families — to argue that it creates an uneven playing field between the two tax regimes.

💡 Expected Change: Extension of Insurance Deductions

Ahead of the Budget, tax experts and industry voices are pushing for two key reforms related to insurance deductions:

✅ 1. Extension to the New Tax Regime

There is a growing expectation that the government may allow life and health insurance premium deductions under the new tax regime, not just the old one. That means taxpayers opting for lower tax slabs would still get relief for buying protective coverage like term life or health plans.

💡 2. Higher Deduction Limits

Insurance industry bodies and analysts are also urging the Budget to increase the deduction caps:

Potential rise in health insurance deduction beyond ₹25,000/₹50,000

A separate, enhanced category for term life insurance premiums (similar to how pension/NPS deductions work)
These changes aim to better reflect actual protection costs and rising healthcare inflation.

🧠 Why This Matters for Taxpayers

If extended to the new regime and/or raised in amount, insurance deductions could:

Make health and life coverage more affordable for working adults and families

Encourage higher insurance penetration — especially crucial with rising medical costs

Help balance the appeal of the new tax regime without losing valuable reliefs traditionally available only under the old one

This has been highlighted as a top expectation from the Budget alongside standard deductions and other relief measures.

💼 Other Tax Reliefs Being Proposed

Alongside insurance deduction talks, Budget 2026 discussions include calls for:

Higher standard deductions (possibly beyond ₹75,000 under the new regime)

Extended deductions for home loan interest and HRA even under new tax regime

Simplification of deductions while keeping taxpayer benefits intact
These expectations show a broader intent to make tax rules fairer and more taxpayer-friendly.

📌 Final Takeaway

While nothing is official until Finance minister Sitharaman presents the Budget on february 1, 2026, the consensus among experts and industry groups is clear:

Life and health insurance premium deductions may be extended to the new tax regime or expanded in scope, giving taxpayers more flexibility and relief — especially those who want both lower tax rates and meaningful deductions.

 

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