Tax Treatment — Premium Deduction (Section 126) and GST
The income-tax deduction for health insurance premiums under section 126 of the Income-tax Act, 2025 — its limits, its conditions and the tax regime it belongs to — and the GST position on individual health insurance premiums.
The provision
The Income-tax Act, 2025 came into force on 1 April 2026 and replaced the 1961 Act. The deduction for health insurance premiums, which older material calls section 80D, is now section 126.
Premiums paid for health insurance qualify, and that includes the premium for a standalone critical illness policy. A deduction is subtracted from income before tax is worked out, so it lowers the income on which tax is charged; it is not a refund of the premium.
The limits
There are two limits, one for each group of people covered. Premiums for self, spouse and children qualify up to ₹25,000. Premiums for parents qualify for a further ₹25,000. Each limit becomes ₹50,000 where the person covered is a senior citizen.
The largest total is therefore ₹1,00,000: a senior citizen paying for self and family, and also for senior-citizen parents. The cost of a preventive health check-up counts up to ₹5,000, but it sits inside these limits and is not an addition to them.
Two conditions
The first condition is the mode of payment. The premium must be paid by a mode other than cash, such as cheque, UPI, card, net banking or demand draft. The one exception is the preventive health check-up, which may be paid for in cash.
The second is the tax regime. The section 126 deduction is allowed only under the old tax regime. A taxpayer in the default new regime, which is section 202 of the Income-tax Act, 2025, gets no deduction for health or critical illness insurance premiums.
GST, and what this lesson leaves out
Since 22 September 2025, GST is nil on individual health insurance premiums, including family floater and senior citizen policies. Earlier the rate was 18%. The exemption is for individual policies; group policies are not covered by it.
This lesson deals with the premium of a standalone health policy. How a critical illness payout is taxed depends on the type of policy and is not covered here, and neither is the treatment of a rider's premium on a life policy.
Rules at a glance
Working out the deduction
- Assumptions of the example: Ramesh has chosen the old tax regime, and neither he nor his wife is a senior citizen. In the tax year he pays, by UPI, ₹8,000 for a standalone critical illness policy on himself and ₹10,000 for a health policy covering himself, his wife and their children. He pays ₹4,000 in cash for his own preventive health check-up. He also pays ₹38,000 by cheque for a health policy on his parents, who are senior citizens.
- Self and family: ₹8,000 + ₹10,000 = ₹18,000 of premium, plus ₹4,000 for the check-up (within the ₹5,000 allowed) = ₹22,000. The limit is ₹25,000, so the full ₹22,000 qualifies.
- Parents: ₹38,000 of premium. The limit is ₹50,000 because the parents are senior citizens, so the full ₹38,000 qualifies.
- Total deduction: ₹22,000 + ₹38,000 = ₹60,000.
- Variation: if his own premiums had come to ₹24,000, then ₹24,000 + ₹4,000 = ₹28,000 would exceed the ₹25,000 limit, and only ₹25,000 would qualify. The check-up does not add a separate ₹5,000.
- Under the default new regime the deduction would be nil in every case.
Result. Ramesh can deduct ₹60,000 under section 126 in the old regime: ₹22,000 for self and family and ₹38,000 for his parents.
Key points
- Health insurance premiums, including a standalone critical illness policy's premium, fall under section 126 of the Income-tax Act, 2025 (old section 80D).
- The limits are ₹25,000 for self, spouse and children and a further ₹25,000 for parents, each rising to ₹50,000 for a senior citizen.
- The ₹5,000 preventive health check-up allowance sits inside the limits.
- The premium must be paid by a non-cash mode, and the deduction is available only under the old tax regime.
- GST has been nil on individual health insurance premiums since 22 September 2025.
Common misunderstandings
- The ₹5,000 for a preventive health check-up is not extra: it sits inside the ₹25,000 or ₹50,000 limit.
- The deduction is not available in the default new regime: section 126 applies only under the old tax regime.
- A premium paid in cash does not qualify: only the preventive health check-up may be paid for in cash.
- Nil GST does not extend to every health policy: the exemption is for individual policies, and group policies are not covered by it.
- Nothing in section 126 settles how a claim payout is taxed: that depends on the type of policy and is outside this lesson.
Questions people ask
Has section 80D been abolished?
The 1961 Act has been replaced with effect from 1 April 2026. The deduction continues as section 126 of the Income-tax Act, 2025; older material uses the number 80D.
What is the largest deduction possible?
₹1,00,000: up to ₹50,000 for a senior citizen's own and family premiums, plus up to ₹50,000 for senior-citizen parents.
Does a critical illness premium have a limit of its own?
No. A standalone critical illness policy is health insurance, so its premium counts within the same section 126 limits as other health insurance premiums.
What this lesson relies on
- Income-tax Act, 2025 — section 126 (old section 80D) and section 202
- GST Council, 56th meeting (3 September 2025) — exemption for individual health and life insurance policies from 22 September 2025
This lesson was reviewed independently against these sources on 8 October 2026. Rules change: check the current regulation, scheme document or policy wording before relying on any figure. This is education, not advice.