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Budget 2026: New Tax Regime May Get Home Loan, Health Insurance Deductions
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Budget 2026 may bring middle-class relief as experts urge adding home loan interest and Section 80D health insurance deductions to the new tax regime
At present, most popular deductions are available only under the old tax regime. (AI-Generated Image)
As the Centre prepares to present the Union Budget in February 2026, expectations are building around possible changes to the personal income tax framework, with policymakers facing mounting pressure to make the new tax regime more attractive for middle-class taxpayers.
A key demand emerging from tax experts and industry bodies is the inclusion of select deductions, particularly home loan interest and medical insurance premiums, within the new regime. At present, most popular deductions are available only under the old tax regime, prompting many taxpayers to forgo lower tax rates in favour of exemptions and deductions.
According to reports in The Economic Times, experts have urged the government to consider allowing Section 80D deductions for health insurance in the new regime. Niyati Shah, Chartered Accountant and Personal Tax Head at 1 Finance, said a capped deduction of Rs 25,000 to Rs 50,000 for health insurance premiums would be justified, given that medical inflation is running at an estimated 12-14% annually.
Viswanathan Iyer, Senior Associate Professor at the Great Lakes Institute of Management, Chennai, told TOI that for an individual earning Rs 15 lakh annually, a standard or health insurance deduction of Rs 1 lakh could translate into tax savings of about Rs 4,000.
Another report suggested that Section 80D should be made available under both tax regimes, with higher limits for senior citizens. Business Standard quoted Shah as saying that the policy focus should be on healthcare, housing and retirement, recommending a simple flat deduction for home loan interest or house rent allowance (HRA), along with a capped health insurance benefit.
SR Patnaik, Partner and Taxation Head at Cyril Amarchand Mangaldas, proposed higher interest deductions on savings and fixed deposits and an upward revision of the income threshold for the 30% tax slab.
Housing-related tax relief has also emerged as a major talking point. Reports in The Financial Express and by trading platform Upstox quoted experts, including Abhishek Soni, as calling for an increase in the home loan interest deduction under Section 24(b) from the current Rs 2 lakh-Rs 3 lakh, citing rising property prices and higher EMIs. The Institute of Chartered Accountants of India (ICAI), in its pre-Budget memorandum, has recommended allowing Section 80D deductions in the new regime to improve health insurance penetration.
The debate has spilled over to social media, where Budget 2026 has become a trending topic. Financial expert Sumit Kapoor (@moneygurusumit) posted on X that health insurance deductions under Section 80D could return to the new regime, along with partial home loan benefits, potentially pushing effective tax-free income up to Rs 17 lakh.
CA Himank Singla echoed similar expectations, citing possible standard deductions of Rs 1–1.5 lakh, health insurance benefits and home loan relief. Journalist Ninad Sheth suggested that substantial interest deductions on home loans and GST benefits for affordable housing were “almost certain”, while some users speculated that the home loan interest cap could be raised to as much as Rs 5 lakh.
Currently, the new tax regime offers lower tax rates but virtually no deductions, apart from a standard deduction of Rs 75,000 for salaried employees. In contrast, the old regime allows deductions of up to Rs 2 lakh on home loan interest and up to Rs 25,000 on medical insurance premiums under Section 80D, rising to Rs 50,000 for senior citizens.
For the ongoing framework, income up to Rs 12 lakh is effectively tax-free under the new regime due to an enhanced rebate under Section 87A, extending to Rs 12.75 lakh when the standard deduction is factored in. On an annual income of Rs 15 lakh, the tax liability under the new regime works out to about Rs 1.56 lakh after deductions.
Experts argue that if limited deductions such as home loan interest and health insurance premiums are allowed within the new regime, taxpayers could benefit from both lower rates and meaningful relief. For instance, a Rs 2 lakh home loan interest deduction could reduce taxable income by the same amount, resulting in tax savings of Rs 60,000 for someone in the 30% slab. A Rs 25,000 health insurance deduction would save another Rs 7,500. If higher caps are introduced, savings could rise substantially.
January 21, 2026, 20:09 IST
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