Taxpayers who have opted to remain in the Old Tax Regime have consistently complained in every budget session that the most popular deductions have remained unchanged. Sections like 80C, 80D, and home loan interest benefits are still governed by limits set a decade ago, while incomes, medical costs, and housing prices have risen sharply. As Budget 2026 approaches, the debate has intensified again on whether the government should finally reconsider these deductions or push taxpayers towards the New Tax Regime, where such exemptions have been eliminated.

Have the OTR Tax Deductions Become Outdated?

The Old Tax Regime (OTR) was based on savings-linked incentives. Deductions under Section 80C encouraged long-term investments, while Section 80D promoted health insurance coverage. Home loan benefits supported home ownership. However, most of these limits were last revised between 2014 and 2015.

As Chartered Accountant Dr. Suresh Surana states in an FE report, the major personal tax deductions under the Income Tax Act, 1961, particularly Section 80C, Section 80D, and housing loan-related benefits under Sections 24(b) and 80EE/80EEA, have remained largely unchanged for many years despite rising incomes, inflationary pressures, and the higher cost of living. This has diminished their real value as effective tax-saving components.

No Change in Section 80C Since 2014

Section 80C remains the most widely used deduction, covering PF contributions, LIC premiums, ELSS investments, tuition fees, and repayment of the principal amount of home loans. However, the limit of ₹1.5 lakh under Section 80C has remained unchanged since the Finance Act, 2014. Surana, in the media report, states that this limit no longer reflects the increased costs of long-term savings, retirement schemes, and education expenses, especially for middle-income families. He suggests that the Budget 2026 could consider increasing the limit to ₹3 lakh or linking it to inflation to restore its relevance.

Section 80D: Health Insurance Deduction Lags Behind Medical Inflation

Over the past decade, particularly after the pandemic, health insurance premiums have increased significantly. However, Section 80D still allows a maximum deduction of ₹25,000 for self and family and ₹50,000 for senior citizens – these limits were last revised in the Finance Act, 2015.

Surana points out that, given the medical inflation and the increase in insurance premiums, these limits are quite low. He argues that an increase in the limits could encourage wider health insurance coverage and reduce out-of-pocket medical expenses for families.

Home Loan Interest Deduction Stuck at ₹2 Lakh

For homeowners, the interest deduction on self-occupied property under Section 24(b) is capped at ₹2 lakh – a limit that was also last revised in 2014. This is despite the significant increase in property prices and home loan amounts in urban areas.

While additional deductions were introduced under Sections 80EE and 80EEA for first-time homebuyers, these were time-bound and subject to stringent conditions, limiting their scope. Surna suggests that the ₹2 lakh limit could be linked to an increase in stamp duty valuation or other measurable property benchmarks, "so that the benefit is better aligned with the realities of the current housing market."

Why hasn't the government revisited the deductions under the old tax regime?

Despite repeated demands, the government has shown little interest in increasing the deductions under the old regime in recent budgets. The reason is structural — the policy intent has clearly shifted towards the new tax regime, which offers lower rates but eliminates exemptions and deductions. More than 80 percent of taxpayers have already opted for the new regime, and further expanding the benefits of the old regime could slow down this transition. Therefore, Budget 2026 is expected to maintain the same direction, even as pressure mounts from taxpayers who still rely on exemptions for tax planning. Whether the government finally updates these long-pending limits or allows them to gradually become irrelevant will be one of the key tax signals to watch out for in Budget 2026.

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