One complaint of taxpayers living in the old tax regime in every budget session has been that there has been no change in most of the popular deductions. Sections like Section 80C, 80D and loan interest benefits are still applicable with limits set a decade ago, while income, medical costs and home prices have increased rapidly. As Budget 2026 approaches, the debate has resurfaced on whether the government should ultimately take a relook at these deductions or ask taxpayers to move to the new tax regime. Where such exemptions have been abolished.
Have OTR tax deductions become outdated?
The old tax regime i.e. OTR was based on incentives related to savings. Deductions under Section 80C encouraged long-term investments, while Section 80D promoted health insurance coverage. Home loan benefits used to support housing ownership. However, most of these limits were last revised between 2014 and 2015.
As chartered accountant Dr Suresh Surana reports in FE, key personal tax deductions under the Income Tax Act, 1961, particularly Section 80C, Section 80D, and housing loan benefits under Section 24(b) and 80EE/80EEA, have remained virtually unchanged over the years despite rising incomes, inflationary pressures and higher cost of living. This has reduced their real value as effective tax saving components.
No change in Section 80C since 2014
Section 80C remains the most widely used deduction, which includes PF contributions, LIC, ELSS investments, tuition fees and repayment of home loan principal. Nevertheless, there has been no change in the limit of Rs 1.5 lakh since the Finance Act, 2014. Surana says in the media report that this limit no longer reflects the increased cost of spending on long-term savings, retirement schemes, and education, especially for middle-income families. He suggests that to restore its relevance in Budget 2026, consideration can be given to increasing the limit to Rs 3 lakh or linking it to inflation.
Section 80D: Medical care lags behind inflation, health insurance lags behind
Over the past decade, especially after the pandemic, health insurance premiums have increased rapidly. However, Section 80D still allows a maximum deduction of Rs 25,000 for self and family and Rs 50,000 for senior citizens – these limits were last amended in the Finance Act, 2015.
Surana says that considering the medical inflation and increase in insurance premium, this limit is quite low. They say that increasing the limit can promote comprehensive health insurance coverage and reduce out-of-pocket medical expenses for families.
Interest deduction on home loan stuck at Rs 2 lakh only
For home owners, interest deduction on self-occupied property under section 24(B) is limited to Rs 2 lakh — this limit was also last revised in 2014. This is despite a significant increase in property prices and home loan amounts in the cities.
Although additional deductions under sections 80EE and 80EEA for first-time home buyers were introduced, they were time-bound and subject to strict conditions, limiting their scope.
Surana suggests that the Rs 2 lakh limit could be linked to an increase in the stamp duty calculation value or other such measurable property parameters “so that the benefit can be better underpinned with the realities of the current housing market.”
Why didn’t the government reconsider OTR deductions?
Despite repeated demands, the government has not shown much interest in increasing the cuts of the old system in recent budgets. The reason for this is structuring — the policy intent has clearly shifted toward a new tax regime that offers lower rates but eliminates exemptions and deductions. More than 80 per cent of taxpayers have already switched to NTR, and further expansion of OTR benefits could slow down this transition. Therefore, Budget 2026 is expected to maintain this direction, even though there is increasing pressure from taxpayers still dependent 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 in Budget 2026.