As we head into 2026, the Indian taxpayer is looking at the Union Budget with a specific set of eyes. At Motilal Oswal, we see this year as a Rebalancing Year. With the 8th Pay Commission expected to roll out and urban inflation impacting the middle-income segment, the demand for a modern, realistic deduction framework has never been stronger.

For years, the Indian taxpayer has relied on the Old Tax Regime for its tax-saving basket. However, with the government’s clear push toward the New Tax Regime, the 2026 Budget faces a dilemma: Should they increase the old limits, or finally introduce these benefits to the new system?

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Here is our deep dive into the expectations for Section 80C, 80D, and beyond.

Section 80C: The ₹1.5 Lakh Ceiling

Section 80C is the most popular tax-saving tool in India, covering everything from PPF and ELSS to life insurance and children's tuition fees. However, the limit of ₹1.5 lakh has remained unchanged since 2014.

The 2026 Expectation:

• Hike to ₹3 Lakh: Our analysis suggests that given the 10-year gap and the cumulative inflation since 2014, a ₹1.5 lakh limit today is worth significantly less in real terms. Taxpayers are hoping for a doubling of this limit to ₹3 lakh.

• Impact on Savings: At Motilal Oswal, we believe such a move would drastically improve the Financialization of Savings, directing more capital into long-term wealth creators like ELSS and NPS.

Popular 80C Instruments & Their Potential

Section 80D: Combating Medical Inflation

Medical inflation in India is currently estimated at 12-14%, significantly higher than general CPI. For a family of four, a comprehensive health cover today easily costs ₹25,000 to ₹40,000 in premiums.

The 2026 Wishlist:

1. Hike for Self/Family: From ₹25,000 to ₹50,000.

2. Hike for Senior Citizen Parents: From ₹50,000 to ₹1,00,000.

3. GST Relief: While not directly under Section 80D, there is a strong expectation that the 18% GST on health insurance premiums will be reduced to 5%, providing immediate relief to the salaried class.

Section 24(b): The Home Ownership Dream

While 80C covers the principal, Section 24(b) allows for a deduction on the interest paid on home loans, currently capped at ₹2 lakh.

• The Reality: In 2025-26, interest rates have stabilized but at a higher level than the previous decade. For a ₹50 lakh loan at 9%, the annual interest alone is ₹4.5 lakh.

• The Expectation: A hike in the interest deduction limit to ₹3 lakh - ₹4 lakh. This would provide much-needed support to the Affordable and Mid-segment housing sectors.

NPS (80CCD): Promoting a Pensioned Society

Currently, an additional deduction of ₹50,000 is available under Section 80CCD(1B) for NPS contributions.

• Expectation: Increase this dedicated NPS limit to ₹1,00,000.

• Motilal’s View: We advocate for this hike as it aligns with the government’s goal of reducing the burden on the state social security system by encouraging private retirement planning.

The New Regime Twist: Will Deductions Cross Over?

As of late 2025, the New Tax Regime is the Default choice. However, it lacks most of these popular deductions. At Motilal Oswal, we hear one question most often: Will the government bring 80C or 80D into the New Regime?

The Likely 2026 Scenario:

The government may introduce Social Security Deductions in the New Regime. This could mean allowing deductions for Health Insurance (80D) and NPS in the New Regime, while keeping 80C (the investment-heavy part) exclusive to the Old Regime.

Summary Table: Current vs. Expected Benefits

Final Thoughts

At Motilal Oswal, we believe that while tax deductions are a great way to save, Investment Quality is the way to grow. If you are a young investor in 2026, the New Tax Regime (with its lower slabs) might still be better for your take-home pay. However, for those with existing home loans and life insurance commitments, the potential hike in 80C and 24(b) could make the Old Regime a winner once again.

Our advice? Buy Right: Sit Tight. Don't change your investment strategy solely based on tax tweaks. Focus on the underlying business quality of your ELSS or the longevity of your NPS.

Explore Budget 2026 Insights - Income Tax Slab Changes | Taxpayer Expectations | Salaried Class Expectations | Standard Deduction & Rebates | Capital Gains Tax | LTCG Rule Changes | Mutual Fund Taxation