Health insurance deduction: two ₹25,000 buckets in rupees

Two buckets, not one

Section 80D, which is section 126 under the Income-tax Act 2025 with the limits unchanged, allows a deduction for health insurance premiums in two separate buckets:

1. You, your spouse and your children. Up to ₹25,000, rising to ₹50,000 if anyone in this bucket is 60 or over.
2. Your parents. Up to ₹25,000, rising to ₹50,000 if either parent is 60 or over. This bucket applies whether or not your parents depend on you, as long as you paid the premium.

The buckets are independent: a ₹30,000 premium for your own family does not use up any of your parents' limit, and vice versa. The deduction is for the old tax regime only; on the new default regime it is worth nothing, which is why it is one of the items weighed in old vs new regime.

From deduction to tax saved

A deduction is not a refund. It cuts taxable income, so the saving is the deduction times your marginal rate with 4% cess added. The table uses 20.8% (the 20% slab) and 31.2% (the 30% slab) and ignores surcharge.

Each cell is simple multiplication: ₹42,000 × 0.208 = ₹8,736; ₹42,000 × 0.312 = ₹13,104; ₹75,000 × 0.208 = ₹15,600; ₹75,000 × 0.312 = ₹23,400; and ₹1,00,000 × 0.208 and × 0.312 give ₹20,800 and ₹31,200.

Two things stand out. First, the deduction cannot be worth more than about 31% of the premium, so the tax saving is a discount on the cost of cover, not a reason to buy it. Second, in case B the family paid ₹83,000 in premiums but only ₹75,000 was deductible: premiums above the bucket's cap earn nothing.

The check-up trap

Preventive health check-ups qualify for up to ₹5,000 a year, but the amount is not on top of the buckets. It fits inside them and is shared between the two. If your family premium is ₹22,000 and you spend ₹5,000 on a check-up, the family bucket is ₹27,000 on paper and ₹25,000 in the deduction. The ₹5,000 helps only when there is headroom left. Check-ups are also the one item you may pay in cash.

Rules that catch people out

• Non-cash payment. A premium paid in cash does not count. UPI, card, net banking or cheque do.
• Who paid. The deduction is for the person who paid the premium. A premium your employer pays under a group policy was not paid by you, so there is nothing for you to claim on it.
• Parents means your parents. A spouse's parents are not in the parents' bucket.
• A senior with no policy. A person aged 60 or over who holds no health policy may claim actual medical expenditure within the ₹50,000 limit instead.
• Top-up covers count. The premium on a super top-up policy is a health insurance premium like any other, and it often buys a lot of cover for a modest premium.
• Multi-year premiums. A premium paid upfront for several years is generally spread over the years of cover rather than claimed in one year; check the policy documents.

What this should and should not drive

The deduction can nudge you to cover your parents or to move to a bigger sum insured, but it should not decide the policy. The questions that matter are the sum insured, the room-rent limit, the waiting periods and exclusions, and whether the insurer settles claims. A ₹55,000 premium for a policy that denies the claim saves ₹17,160 in tax at the 30% slab and still leaves you with a hospital bill.

You can enter your own premiums and ages in the Section 80D calculator, and see how it combines with the other deductions in the Section 80C calculator and the old vs new regime calculator.

Reading this

• The premiums, ages and slabs above are examples chosen so the sums can be checked; they are not quotes for any policy.
• Surcharge and the lower-income rebate are not modelled, and the rules are described for FY 2026-27. Confirm current limits against the Act or a chartered accountant before filing.
• This is a description of how the deduction works, not tax or insurance advice.