As expectations build ahead of the Union Budget, the Institute of Chartered Accountants of India (ICAI) has pitched for targeted changes in individual taxation, focusing on the default tax regime, surcharge thresholds, and deductions relevant to retail taxpayers.
In its pre-Budget memorandum submitted to the finance ministry, ICAI said that while the new default tax regime has simplified slab rates, it has also removed key deductions that support household financial security. The institute has urged the government to reconsider this balance to make the regime more equitable for individuals and families
Health insurance and disability deductions
One of ICAI’s key recommendations relates to the non-availability of deductions for health insurance premiums under the default tax regime. At present, taxpayers opting for the default regime cannot claim deductions for Mediclaim premiums or medical expenditure.
ICAI said this could discourage continued health insurance coverage at a time when out-of-pocket healthcare costs are rising. It has suggested allowing deductions for medical insurance premiums and specified medical expenses even under the default regime, aligning tax policy with household risk protection needs
The institute has also proposed extending disability-related deductions—available under the old regime—to the default regime. These include tax relief for individuals with disabilities and for taxpayers supporting dependent family members with disabilities. ICAI further recommended enhancing deduction limits to account for inflation and rising care costs
Higher surcharge threshold for individuals
ICAI has flagged concerns around surcharge applicability under the default tax regime. Since total income under the new regime is calculated without exemptions and deductions, taxpayers may cross surcharge thresholds sooner, even without a real increase in disposable income.
To address this, ICAI has proposed raising the surcharge threshold for individuals and Hindu Undivided Families from ₹50 lakh to at least ₹75 lakh. The move, it said, would prevent unintended tax escalation for middle- and upper-middle-income earners opting for the simplified regime
Optional joint taxation for married couples
Another retail-focused proposal relates to family taxation. ICAI has suggested introducing an optional joint taxation system for married couples, allowing them to file a single return with proportionately higher exemption limits and slabs.
The institute said such a system could better reflect the financial realities of single-income households and reduce incentives for income fragmentation. Similar models already exist in countries such as the United States.
