Health Insurance Deduction Under Section 126: Rules & Limits

Introduction

Health insurance protects families from rising medical costs and can also provide a tax benefit when the legal conditions are satisfied. Section 126 of the Income Tax Act, 2025 provides a health insurance deduction for eligible payments made by individuals and Hindu Undivided Families.

The provision covers qualifying health insurance premiums, contributions to the Central Government Health Scheme or another notified scheme, preventive health check-ups, and specified medical expenditure for senior citizens. The Income-tax Act, 2025, came into force from 1 April 2026, so taxpayers should understand how this deduction works for tax years governed by the new Act.

What is Health Insurance Deduction Under Section 126?

Section 126 of the Income Tax Act, 2025 allows an eligible individual or HUF to deduct specified health-related payments from income, subject to prescribed ceilings and conditions.

For an individual, the law separately covers payments for self and family, and payments for parents. “Family” means the spouse and dependant children of the assessee. Parents are dealt with separately.

The Act defines a senior citizen as an individual resident in India who is 60 years of age or more at any time during the relevant tax year. This matters because senior citizen status can increase the applicable health insurance deduction limit.

However, taxpayers should note that the deduction under Section 126 is generally not available when income is computed under the default tax regime under Section 202. An eligible taxpayer must opt out of the default regime, subject to the applicable conditions, to claim this deduction.

Section 80D vs Section 126 of Income Tax Act

For income relating to FY 2025-26 (AY 2026-27), taxpayers should continue to refer to Section 80D of the Income-tax Act, 1961. Section 126 applies to Tax Year 2026-27 and subsequent tax years under the Income-tax Act, 2025.

Who Can Claim the Deduction?

An individual may claim eligible payments relating to self, spouse, dependant children and parents. A Hindu Undivided Family may claim eligible payments relating to its members.

The benefit does not automatically extend to every relative. The person for whom the payment is made must fall within the categories specified in Section 126.

Which Payments Qualify Under Section 126?

Health Insurance Premium

An individual can claim qualifying premium paid to effect or keep in force health insurance for self, spouse and dependant children. A separate category applies to premium paid for parents.

The medical insurance premium deduction is ordinarily subject to a ₹25,000 ceiling for the relevant category. Where the insured person is a senior citizen, the amount specified in the law is substituted with ₹50,000.

CGHS or Other Notified Scheme

Contributions made to the Central Government Health Scheme or another scheme notified by the Central Government for self and family may also qualify within the applicable limit.

Preventive Health Check-Up

Payments for preventive health check-ups of self, family, or parents may qualify. The preventive health check-up deduction is restricted to ₹5,000 in aggregate. This amount is included within the applicable overall ceiling and is not an extra deduction over the ₹25,000 or ₹50,000 limit.

Medical Expenditure for Senior Citizens

Medical expenditure may qualify up to ₹50,000 where it is incurred on the health of a senior citizen and no amount has been paid to effect or keep in force health insurance for that person.

Health Insurance Deduction Limit Under Section 126

Section 126 also places an aggregate ceiling of ₹50,000 on the relevant combination of insurance and qualifying medical expenditure for self and family. A similar ₹50,000 aggregate ceiling applies to the parent category.

Therefore, taxpayers should not simply add every amount mentioned in the section. The health insurance deduction must be calculated within the relevant category and aggregate ceiling.

Rules for Senior Citizens

Where the relevant insured person is a senior citizen, the ₹25,000 insurance limit is replaced with ₹50,000. The law also recognises medical expenditure of up to ₹50,000 where no amount has been paid to effect or keep in force health insurance for that senior citizen.

For example, if an individual pays ₹42,000 as health insurance premium for senior citizen parents, the amount falls within the ₹50,000 ceiling, subject to the other conditions.

Senior citizens may also be eligible for other income tax benefits for senior citizens, depending on their income and applicable provisions.

Get Help With Your Health Insurance Deduction

Calculating a health insurance deduction may appear simple, but the eligible amount can depend on who is covered, whether the person is a senior citizen, the type of expense, the payment method, and the tax regime selected.

Ebizfiling provides online income tax return filing assistance and can help taxpayers correctly report eligible deductions while preparing their return.

Eligibility Check: Understand whether payments made for self, spouse, dependant children, parents or eligible HUF members can be considered under Section 126.

Limit Calculation: Determine the applicable health insurance deduction limit based on insurance premiums, senior citizen status, preventive health check-ups and eligible medical expenditure.

Document Review: Organise relevant policy details, premium receipts, payment records and other supporting information required while preparing the income tax return.

ITR Filing: Get assistance with selecting the applicable return form, preparing the return and reporting eligible deductions correctly.

With Ebizfiling, taxpayers can get professional support for income tax return filing while ensuring that eligible health insurance premium deduction claims are considered according to the applicable provisions.

Conclusion

Section 126 of the Income Tax Act, 2025 provides a structured health insurance deduction for eligible individuals and HUFs. It covers qualifying insurance premiums, specified scheme contributions, preventive health check-ups and certain medical expenditure for senior citizens.

To claim it correctly, taxpayers should identify the relevant category, apply the ₹25,000 or ₹50,000 ceiling as applicable, keep the ₹5,000 preventive check-up cap within the overall limit and follow the prescribed payment rules. Taxpayers should also check their tax regime because Section 126 is generally unavailable when income is computed under the default tax regime under Section 202.

Frequently Asked Questions