Tax Benefits on Term Life Insurance in India 

The tax benefits on term life insurance come from three provisions. Premiums qualify for a deduction of up to ₹1.5 lakh under Section 80C (now Section 123), depending on the individual's tax regime. Premiums on health riders qualify under Section 80D (now Section 126), depending on the individual's tax regime. The death benefit your family receives is tax-free under Section 10(10D) (now Section 11, read with Schedule II) in both regimes.

What changed from 1 April 2026?

From 1 April 2026, the Income-tax Act, 2025 replaced the 1961 Act. It uses one “tax year” instead of “financial year” and “assessment year”. For term insurance, only the section numbers changed. The rules stayed the same.

Income earned in FY 2025–26, the return filed in 2026, is still assessed under the old numbers. FY 2026–27 falls under the new Act. This article gives both, so you can match them to your Form 16 or filing software.

Section 80C (Section 123): Deduction on Term Insurance Premiums

A deduction reduces your taxable income. It does not cut your tax bill rupee for rupee. The conditions:

• Limit: ₹1.5 lakh a year in total, shared with EPF, PPF, ELSS, tuition fees and home-loan principal.

• Whose life: As an individual, you can claim premiums on your own life and on your spouse's or children's. A policy on your parents' lives does not qualify.

• Premium-to-cover test: Premium counts only up to 10% of the "actual capital sum assured" for policies issued on or after 1 April 2012. The cap is 20% for policies issued up to 31 March 2012, and 15% where the insured has a disability or specified disease and the policy was issued on or after 1 April 2013.

• Early exit: Terminating the policy, or letting it lapse before two years' premiums are paid, can reverse deductions already claimed.

On a ₹1 crore term plan, the premium would have to exceed ₹10 lakh a year to breach the 10% test, so it rarely affects pure term cover. It matters more for return-of-premium and other high-premium plans.

Since 22 September 2025, individual term plans carry no GST, so the premium you pay is the premium you claim. Group term policies still attract 18%. Our guide to GST on life insurance premium explains the change.

Section 80D (Section 126): deduction on health riders

The base premium of a term plan does not qualify here. Only health-related riders, such as critical illness cover, do, and the insurer should show the rider premium separately.

Preventive health check-ups up to ₹5,000 fall inside these limits, not on top. The limits are also shared with any health policy you already pay for, so a family floater that uses ₹25,000 leaves no room for a rider claim. Accidental death riders are not health riders. For a shorter walkthrough, see PolicyX's guide to term insurance tax benefits under Section 80C and 80D.

Section 10(10D) (Section 11, Schedule II): Tax-Free Payouts

This is an exemption, not a deduction. The money never enters your total income, so your regime choice does not change it.

• Death benefit: Exempt, with no premium-ratio test and no cap on the amount.

• Exception: A sum received under a keyman insurance policy, which one person takes on the life of an employee or business associate, is not exempt, even on death.

• Return-of-premium maturity: Pure term plans pay nothing if you survive. If your plan returns premiums, the maturity amount is exempt only if the premium stays within 10% of the sum assured (15% for special policies). For non-ULIP policies issued on or after 1 April 2023, total annual premium across such policies must also stay within ₹5 lakh. Otherwise, the amount is taxable.

Old vs new tax regime: Term Insurance Compared

Note: Tax benefits depend on the policy terms and applicable tax provisions. Section 80D does not automatically cover every critical illness rider. Verify the current statutory provisions before publishing.

Worked example (illustrative): Rohit, 35, is in the 30% slab under the old regime. He pays ₹22,000 for a ₹1 crore term plan and ₹6,000 for a critical illness rider. His EPF uses ₹1.2 lakh of the 80C limit, leaving ₹30,000 of room.

• The full ₹22,000 fits under 80C, and ₹6,000 qualifies under 80D.

• Deductions total ₹28,000. Tax saved: ₹8,400 plus 4% of ₹336, or ₹8,736 (surcharge ignored).

• Under the new regime, he saves nothing on premiums, but his family still receives ₹1 crore tax-free.

Which regime should you pick? 

Not on term insurance alone. The new regime has a ₹4 lakh basic exemption limit and a rebate that makes taxable income up to ₹12 lakh tax-free for resident individuals, about ₹12.75 lakh of salary after the ₹75,000 standard deduction. Add up all your old-regime deductions, including HRA and home-loan interest, and compare total tax both ways. A term premium of ₹20,000 to ₹30,000 rarely tips the result.

How to claim Tax Benefits?

• Salaried: Under the old regime, give your employer premium receipts with your investment declaration (Form 12BB), or claim it in your return.

• Self-employed: Claim in your income tax return under the old regime.

• Both: Keep the premium certificate with the rider-wise split, and claim only what you paid in the year.

Conclusion 

Only one term insurance tax benefit applies in both regimes: the death benefit stays tax-free under Section 10(10D), now Section 11. The premium deduction under Section 80C (Section 123) and the health rider deduction under Section 80D (Section 126) are available only in the old regime.

Choose your regime by adding up all your deductions, not by your term premium alone. Whatever the tax saving, pick the cover amount based on what your family would need.

Contact policyx.com to get more information about tax benefits for insurance. They offer no spam, no gimmicks, and only expert guidance.