budget 2024: Income tax relief: Medical cost doubles in 5 years, will Budget 2024 increase Section 80D limit for health insurance?

Budget 2024: Section 80D of the Income-tax Act, 1961 allows you to claim tax deductions for paying premiums for health insurance policies and select health-related expenses. You can claim a tax deduction of up to Rs 25,000 if you are below 60 years of age. For senior citizens, the tax deduction limit can go up to Rs 50,000 for health insurance premiums under Section 80D. Further, you can claim a tax deduction of up to Rs 5,000 for preventive health check-ups. This tax break incentivises health insurance and yearly medical check-ups for preventive care.

Medical inflation doubles in five years; is Rs 25,000 tax deduction under Section 80D enough to cover healthcare costs?

Now, the question is whether Rs 25,000 is enough to purchase adequate health insurance that will cover your medical emergencies and needs. Is the Rs 50,000 tax deduction enough for senior citizens?

It was the 2015 Budget that increased the limit of deduction under section 80D from Rs 15,000 to Rs 25,000 and it has been nine years since then with no increase in the limit.

It is important to remember that the cost of treatment for common ailments that require hospitalisation has more than doubled in five years. A Rs-10-lakh health insurance, which could cover a family of three to five years back, is not adequate to take care of the medical needs now. The tax deduction limit of Rs 25,000 will not typically cover the premium of a health insurance cover of Rs 20 lakh for a family of two or more today. If you are above the age of 40 and have a family of three, you will have to shell out even more for the premium of your health insurance.
As you grow older, the premiums of health insurance will increase further. For senior citizens, the premiums of health insurance coverage are even higher. The average premium for health insurance cover of Rs 10 lakh for two people above the age of 60, will cost you around Rs 69,178, as per the data by SecureNow. For senior citizens, the 80D limit was hiked in 2018 from Rs 30,000 to Rs 50,000 and it has remained unchanged since then.

Premiums of health insurance policies in 2024

Source: SecureNowFor an individual below the age of 60, it is possible to buy a lower health insurance cover of Rs 5 lakh or Rs 10 lakh and the premium will be very well within the tax-deduction limit of Rs 25,000. But just think once if Rs 10 lakh health insurance is enough to cover a family of three, especially when the medical cost has been rising rapidly.The average inflation in treatment-related costs has been more than 100% in the last 4-5 years. Average claims for infectious diseases rose to Rs 64,135 in 2022 from 24,569 in 2018, an increase of over 160%, data from Policybazaar showed. For respiratory disorders, the average claim rose to Rs 94,245 from Rs 48,452, a 94% rise. In metros like Mumbai, the average claim for infectious diseases jumped to nearly Rs 80,000 from Rs 30,000, which is more than 2.5 times.

So, if someone purchased Rs 10 lakh health insurance five years ago, then they may need to increase the cover to Rs 20 lakh or more to ensure adequate protection.

Why Section 80D tax-deduction limit should increase in Budget 2024?

Further, COVID-19 has shown us that if multiple people in a family fall ill at the same time, the healthcare cost can shoot up multifold. To cope with the rising medical inflation, the sum insured must be increased periodically.

When you buy health insurance, especially if it is a family floater plan, it is for life. You need to keep in mind that it is enough to take care of yourself and your family for the long term. You can always increase the limit later but as you age, it will cost you even more. Therefore, the aim should be to buy a health insurance cover that will suffice your needs in the future.

As the existing limit of Rs 25,000 under Section 80D does not usually cover the average premium spent for health insurance by many taxpayers across various ages, the insurance industry wants Budget 2024 to hike the limit. It has been a longstanding demand to the Finance Minister Nirmala Sitharaman, especially after the COVID-19 pandemic. Vighnesh Shahane, MD & CEO, of Ageas Federal Life Insurance, says, “There is a pressing need to revisit the Section 80D limit on health insurance, especially in the aftermath of the Covid-19 pandemic, which underscored the significance of adequate health coverage. The current limit of Rs 25,000 has remained unchanged for an extended period and falls short of addressing the escalating costs of medical expenses. An increase in this limit would better align with the current healthcare landscape and provide individuals with enhanced financial protection.”

The limit of Section 80D has not been raised in the last couple of years. “Post the pandemic, the costs of medical treatment, insurance, and preventive healthcare have been spiraling. A regular household will need to care of kids, the elderly as well as self which is a huge burden on the family budget. Thus, it is advisable to revisit these limits of benefit under 80D by the finance minister in Budget 2024,” says Aarti Raote, Partner, Deloitte India.

Budget 2024: Section 80D tax-deduction limit should be hiked to Rs 50,000, Rs 1 lakh for senior citizens

Section 80D deduction’s existing limit of Rs 25,000 needs to be reconsidered and potentially increased to Rs 50,000, says Tarun Rustagi, Chief Financial Officer, Canara HSBC Life Insurance. Echoing the same, Santosh Agarwal, Chief Business Officer – Life Insurance, Policybazaar.com, says, “In the wake of the pandemic, health insurance has become more important than ever. The health insurance industry has seen several innovations, but there is still room for improvement in tax structuring. One possible solution is to increase the maximum deduction limit for individuals, spouses, and dependent children to Rs 50,000, and for senior citizen parents to Rs 1,00,000.”

“Increase the tax exemption limit under Section 80D for health insurance premiums from Rs 50,000 to Rs 75,000 (for senior citizens), to encourage more people to buy adequate health cover and reduce the burden on the public health system,” says Rakesh Jain, CEO, Reliance General Insurance.

“As an industry, we would like to see an increase in the current limit of 1 lakh to claim tax deductions under section 80D as it would encourage more people to opt for health insurance. Given that senior citizens need health insurance the most, the government can consider increasing this limit to allow a deduction of 50,000 for parents less than 60 years of age and 1 lakh for parents above 60 years of age. This tax benefit will encourage more people to opt for health insurance for their elderly parents,” says Krishnan Ramachandran, MD & CEO, Niva Bupa Health Insurance.