Section 126 Income Tax Act 2025- Health Insurance Deduction Guide

Medical expenses in India continue to rise every single year. A health insurance policy has become a financial necessity for individuals and families. The Income Tax Act, actively regards you for staying covered. If you are paying premiums for health insurance for yourself, your family, or your parents, you are entitled to a meaningful tax  deduction each year. 

The Income Tax Act, 2025 came into effect on the 1st April 2026. From FY 2026-27 onwards, Section 126 governs health insurance deductions, replacing Section 80D of the Income-tax Act, 1961 which is still applicable  for the current Tax Session. 

What is Section 126 of the Income Tax Act, 2025 ?

Section 126 states Deduction in respect to health insurance under Chapter VIII. This section provides that an assessee, being an individual or a Hindu Undivided Family, shall be allowed a deduction of a sum which is specified in sub-sections (2) to (8). The payment of which would be made, out of the assessee's income, in any mode specified in sub-section (9), is chargeable to tax in the tax year.

The deduction, as mentioned under Section 126 and Section 126(2)  includes the following types of payments:

1. Health insurance premium for the assessee, his family, dependent children, Spouse, parents.
2. Contributions made to the Central Government Health Scheme (CGHS) or such other schemes may be notified by the Central Government.
3. The Payments made for the preventive health check-up of the assessee's parents.
4. The medical expenditure incurred on the health of the senior citizens, when there is no insurance policy covering the expenses. 

Explanation:-

This deduction can be availed over and above the Rupees 1.5 Lakh limit as mentioned under Section 123 which is a completely different deduction bucket, which means claiming Rupees 1.5 Lakh under Section 123 has zero impact on your Section 126 claim.

Who can claim Deduction Under Section 126 ?

As per Section 126 deduction can be availed by an assessee, being an individual or a Hindu undivided family. Section 126 does not apply to companies, partnerships firms, LLPs, associates of persons or bodies of individuals.

Eligible assessees

1. Individual (including resident or non-resident, salaries, self employed or retired)
2. Hindu Undivided Families

Non- eligible assessee would include

1. Companies
2. Partnership firms and LLPs
3. Associates of Persons or Bodies of Individuals.

What is the Deduction Limit as per Section 126 for Individuals?

Section 126(2) is divided into distinct computation that operate independently of each other

Self and Family as per Section 126(2)(a) and Section 126(2)(c )

As per, Section 126(2)(a), the deduction covers the whole of the amount paid to effect or keep in force health insurance of the assessee or his family, or any contributions made to the CGHS or any other notified schemes, or any payment made preventive health check-up o the assessee or his family for up to 25,000 in aggregate.

As per Section 126(2)(c), the deduction also includes medical expenditure which is incurred on the health of the assessee or any member of this family up to Rupees 50,000 in aggregate. This provision is applicable only for senior citizens.

Section 126(2)(b) and Section 126 (d)- Parents

As per Section 126(2)(b), the deductions cover the entire amount paid or keep in force health insurance, or any payment which is made for preventive health check-up, for the assessment up to 50,000 in aggregate.

Deductions for Hindu Undivided Family as per Section 126

Section 80D, where the assessee is a Hindu Undivided Family, the deduction as mentioned Section 80D(1) shall be aggregate of the following amounts:

1. Health Insurance Premium- Up to 25,000 Rupees in aggregate, paid to keep in force a health insurance policy covering an member of the HUF.
2. Medical Expenditure- Up to 50,000 Rupees in aggregate, incurred on account of medical expense for any member of the HUF. 

The deduction under Section 80D is separate from and over the Rs. 1.5 lakh deduction available under Section 80C of the Income Tax Act

Preventive health checkups of up to ₹5,000 are included within these limits. And under this section, family includes only the spouse and dependent children.

Section 126(6) states that the amount under Section 126(5) shall not exceed 50,000 Rupees in the aggregate of the sum which is mentioned under Section 126(5)(a) and Section 126(5)(b).

Section 126(8)(a) applies to Hindu Undivided Family equally if the insured member is a senior citizen. Rupees 25,000 is the limit mentioned as per section 126(5)(a) is substituted with Rupees 50,000.