Section 80D of the Income-tax Act, 1961 lets you save on taxes by covering your health expenses. If you're below 60 years old, you can deduct up to Rs 25,000 for health insurance premiums. For senior citizens, the limit goes up to Rs 50,000. Additionally, you can claim up to Rs 5,000 for preventive health check-ups. These deductions encourage people to invest in health insurance and regular check-ups for better preventive care.

With medical costs rising, the question arises: Is Rs 25,000 enough to cover healthcare expenses? And for seniors, is Rs 50,000 sufficient? The deduction limit was raised from Rs 15,000 to Rs 25,000 in the 2015 Budget, but it hasn't been increased since then, despite nine years passing.

It's crucial to consider whether these deductions adequately cover the increasing costs of healthcare.

Over the past five years, the cost of hospital treatment for common illnesses has more than doubled. This means that the health insurance policies we used to rely on may no longer be sufficient to cover our medical needs. For instance, a health insurance plan worth Rs 10 lakh, which was adequate for a family a few years ago, may now fall short.

Consider this: the tax deduction limit for health insurance premiums is Rs 25,000. However, this might not cover the premium for a Rs 20 lakh health insurance plan for a family of two or more. If you're over 40 with a family of three, you'll likely have to pay even more for your health insurance premium.

As you age, health insurance premiums tend to increase, and this is especially true for senior citizens. For example, a health insurance plan with a coverage of Rs 10 lakh for two people over 60 years old can cost around Rs 69,178, according to SecureNow.

Although the tax deduction limit for health insurance premiums was raised to Rs 50,000 for senior citizens in 2018, it hasn't changed since then.

For individuals under 60, it's possible to opt for lower coverage amounts, like Rs 5 lakh or Rs 10 lakh, with premiums well within the Rs 25,000 tax deduction limit. However, it's essential to consider whether these coverage amounts are enough to protect a family, especially given the rapid rise in medical costs.

Over the past 4-5 years, the cost of medical treatments has increased dramatically. According to data from Policybazaar, the average expenses for treating infectious diseases and respiratory disorders have surged significantly. For instance, the average claim for infectious diseases rose by over 160% from 2018 to 2022, reaching Rs 64,135. Similarly, the average claim for respiratory disorders increased by 94% during the same period, reaching Rs 94,245.

In major cities like Mumbai, the rise in treatment costs is even more pronounced. For example, the average claim for infectious diseases in Mumbai soared to nearly Rs 80,000 from Rs 30,000, which is more than 2.5 times higher.

Given these steep increases in healthcare expenses, it's crucial for individuals to reassess their health insurance coverage. Someone who purchased a Rs 10 lakh health insurance policy five years ago may now find it necessary to increase their coverage to Rs 20 lakh or more in order to ensure adequate protection against rising medical costs.

Why Section 80D Tax Deduction Limit Should Increase in Budget 2024?

It's important to consider raising the Section 80D tax deduction limit in Budget 2024. The COVID-19 pandemic highlighted how healthcare costs can skyrocket when multiple family members fall ill simultaneously. To tackle the increasing medical expenses, it's crucial to periodically raise the sum insured.

When purchasing health insurance, particularly a family floater plan, it's a lifelong commitment. It's essential to ensure that the coverage is adequate not just for the present but also for the future. While you can increase the limit later, it becomes more expensive as you age. Thus, the goal should be to secure a health insurance cover that meets your future needs.

The current limit of Rs 25,000 under Section 80D often falls short of covering the average premium spent on health insurance by many taxpayers of different age groups. Therefore, there's a longstanding demand from the insurance industry for the Finance Minister, Nirmala Sitharaman, to raise the limit, especially in the wake of the COVID-19 crisis.