Health Insurance Tax Benefit in Old and New Tax Regime

Health insurance doesn’t just protect you against medical expenses; it also helps you save on taxes. Under Section 80D of the Income Tax Act, 1961, deductions are provided for premiums paid on health insurance policies.

However, the health insurance tax benefit in old and new tax regime works very differently. The Old Tax Regime allows multiple deductions and exemptions, including health insurance premiums, while the New Tax Regime offers lower tax rates but removes most deductions. So, virtually there is no health insurance tax benefit in the new regime. 

This article focuses on the health insurance tax benefit in old and new regime. If you want a more generalised breakdown of the tax structures, you can refer to this article. 

Confused about health insurance tax benefits? Talk to our experts at Ditto for free, personalized advice.

Here’s a quick comparison:

Health Insurance Tax Benefit in Old and New Tax Regime: Quick Comparison

Particulars	Old Tax Regime	New Tax Regime
80 D deduction?	Yes (for health insurance premiums)	Not applicable
Preventive Health Check-up	Included within the health insurance limits (₹5,000)	Not available
Total Maximum Deduction	₹1,00,000 (if both taxpayer & parents are senior citizens)	₹0
Additional Benefits	HUF and NRI can claim the 80D benefit Treatment costs for uninsured seniors and premiums paid for critical illness riders. 80 C deduction for life insurance premiums	No deduction
Tax rates / Taxes payable	Lower only if all deductions utilised	Lower in general

Note: Under both tax regimes, insurance payouts (such as hospitalization claim reimbursements or direct claim settlements) are completely tax-free, as they are treated as compensation for actual medical expenses, not income. However, tax-saving deductions on premiums are allowed only under the Old Regime.

Why was the new tax regime introduced?

The New Tax Regime was introduced in India to simplify the income tax system, offer lower tax rates, and reduce the paperwork burden associated with claiming multiple deductions and exemptions. Above all, it is devised to encourage consumption and boost economic growth.

Primary Motivations for the New Tax Regime

1. Simplification of the Tax SystemThe old tax regime became increasingly complex due to numerous exemptions and deductions. The new regime simplifies the process by:
   • Eliminating the need to submit proof for deductions (like rent receipts or medical bills).
   • Introducing fewer and broader tax slabs makes calculations easier.
2. Lower Tax RatesThe new regime offers lower tax rates compared to the old regime, providing significant relief to taxpayers, especially those with modest or no deductions.
3. Promoting Consumption Over SavingsBy removing most deductions (like Section 80C), the new regime gives individuals more disposable income, encouraging spending rather than locking money into long-term investments.
4. Fairness and Reduced LitigationWith fewer exemptions, the tax system becomes more transparent and equitable, reducing ambiguity and potential disputes between taxpayers and authorities.
5. Default Tax RegimeFrom the Union Budget 2023, the new tax regime became the default option, nudging most taxpayers toward a simpler system unless they actively opt for the old regime.

Deduction Limits under the Health Insurance Policies

Under Section 80D of the Income Tax Act, 1961, individuals can claim tax deductions for premiums paid towards health insurance for themselves, their family, and their parents. The deduction amount depends on who is covered and their age.

Deduction Limits under Section 80D for the Old Regime

Category	Maximum Deduction Allowed
Self, Spouse & Dependent Children (all below 60)	₹25,000
Parents (below 60)	₹25,000
Parents (60 years or above)	₹50,000
Self/Family (if the insured or spouse is 60+)	₹50,000
Preventive Health Check-up (within the above limits)	₹5,000

Maximum Deduction Possible

• If you are below 60 and your parents are below 60: ₹25,000 (self + family) + ₹25,000 (parents) = ₹50,000
• If you are below 60 and your parents are senior citizens (60+): ₹25,000 (self + family) + ₹50,000 (parents) = ₹75,000
• If you and your parents are all senior citizens (60+): ₹50,000 (self + family) + ₹50,000 (parents) = ₹1,00,000

Did You Know? Deduction is available only under the Old Tax Regime. Premium must be paid through non-cash modes (banking, card, UPI). Preventive health check-up (up to ₹5,000) can be paid in cash. Hindu Undivided Families (HUF) can also claim similar deductions. Health insurance payouts (claims) are tax-free under both regimes.

Examples: How Much Tax Can You Save with Health Insurance?

Example 1: 35-Year Old Individual with 65-Year Old Parents

• Premium Paid for Self, Spouse & Kids: ₹25,000
• Premium Paid for Parents (Senior Citizens): ₹50,000
• Total Premium: ₹75,000

Deduction Calculation under Section 80D:

• Self & family: ₹25,000 (within ₹25,000 limit)
• Parents: ₹50,000 (within ₹50,000 limit) Total Deduction = ₹75,000

Tax Saved: If the individual falls under the 20% tax slab,₹75,000 × 20% = ₹15,000 saved  in taxes (plus cess: an additional charge levied by the Central Government, over and above the base tax to fund welfare schemes such as education and healthcare)

Example 2: 45-Year Old Professional with Parents Aged Below 60

• Premium Paid for Self & Family: ₹20,000
• Premium Paid for Parents (Both Below 60): ₹25,000
• Total Premium: ₹45,000

Deduction Calculation under Section 80D:

• Self & family: ₹20,000 (within ₹25,000 limit)
• Parents: ₹25,000 (within ₹25,000 limit) Total Deduction = ₹45,000

Tax Saved:

If the professional falls under the 30% tax slab,₹45,000 × 30% = ₹13,500 saved (plus cess: an additional charge levied by the Central Government, over and above the base tax to fund welfare schemes such as education and healthcare)

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Conclusion

While health insurance provides peace of mind against medical expenses, it also offers tax relief under the old tax regime. But it is important to know that the health insurance tax benefit in old and new tax regime differs significantly; deductions under Section 80D are available only in the Old Regime, whereas the New Regime offers no such premium-related benefits. However, claim payouts remain tax-free under both.

That said, tax savings shouldn’t be the primary reason for buying health insurance. The real purpose of health coverage is to cushion yourself and your family against unexpected financial troubles arising from medical emergencies. If maximizing tax savings is a priority, the Old Regime offers more scope—but the bigger priority should always be robust protection.

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