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Tax Planning · Term Insurance

Term insurance saves you tax twice. Most people only know about one of the two.

Once a year, on the premium. Once, at the moment it matters most, on the payout. Here is exactly how each works, what changed under the new Income Tax Act, 2025, and how to actually claim it.

₹1.5L

Max yearly deduction on premium, Section 80C (now 123), old regime only

Riders

Separate deduction for health-linked riders under Section 80D (now 126)

100%

Of the death benefit is tax-free under Section 10(10D), no upper limit, any regime

While you’re paying

Two deductions you can claim every year you pay your premium

Both of these only apply if you file under the old tax regime, and both stop the moment you switch to the new one.

Section 80C (now Section 123)

Up to ₹1.5 lakh a year, shared across all 80C instruments (EPF, PPF, ELSS and others), not just your term premium.

Condition: premium must stay under 10% of sum assured for policies issued after April 1, 2012. Older policies follow a 20% cap.

Section 80D (now Section 126)

Covers certain riders separately: critical illness rider premiums fall here. Accidental death and disability riders are clubbed into Section 80C instead.

Which section applies depends on whether the rider is bundled or priced separately, check with your insurer.

Two-year rule: if a regular-premium policy lapses before two years of premiums are paid, deductions already claimed under Section 80C (123) can be reversed and added back to your taxable income for that year.

What it’s actually worth: at the 30% tax slab, an ₹18,000 annual premium saves around ₹5,400 a year. Use the full ₹1.5 lakh 80C limit and the saving reaches ₹45,000 a year, which adds up meaningfully over a 20 to 30 year term.

When it’s actually needed

The one benefit that matters more than the other two combined

The death benefit is 100% tax-free. No cap. Either regime.

Under Section 10(10D) of the old Act, now covered under Schedule II of the Income Tax Act, 2025, whatever your nominee receives, whether it’s ₹50 lakh or ₹5 crore, reaches them without a rupee of income tax owed on it. This is the one part of the three that has nothing to do with which regime you file under.

Without this exemption, a large payout could push a grieving family into a serious tax bill at the exact moment they can least deal with it. That’s the real weight this provision carries, and it’s worth remembering when you’re deciding how much cover to actually take.

Where it stops: the exemption covers the payout itself. If your nominee invests that money afterward, whatever it earns (interest, dividends, capital gains) is taxed as usual. The exemption doesn’t follow the money once it’s been reinvested.

Old regime or new: what changes and what doesn’t

Old regime

Section 80C (123) premium deduction
Section 80D (126) rider deduction
Section 10(10D) death benefit exemption

New regime

Section 80C (123) premium deduction
Section 80D (126) rider deduction
Section 10(10D) death benefit exemption

More taxpayers are moving to the new regime every year, which means the premium deductions are becoming less universally useful. The death benefit exemption doesn’t care either way. Run the numbers for your own income level before choosing a regime just to chase the 80C deduction.

Two things that change the math

If you’re an NRI

Same benefits, same conditions, as long as you have taxable income in India. The 80C (123) deduction needs the old regime; the 10(10D) exemption applies either way.

Check separately whether your country of residence taxes the payout, India’s exemption doesn’t bind other jurisdictions.

GST just dropped to zero

Since September 22, 2025, individual term policies carry 0% GST, down from 18%. On a ₹20,000 premium, that’s ₹3,600 you no longer pay.

Group term and group credit life plans still attract GST. This is separate from the deductions above, it just lowers the bill.

Where people lose the benefit without realising it

Claiming 80C (123) under the new regimeIt simply isn't available there, confirm your filing regime first.

Assuming a parent's premium countsSection 80C (123) covers self, spouse and children only. Parents claim their own.

Ignoring the 10% premium-to-sum-assured capApplies to policies issued after April 1, 2012.

Letting a policy lapse in the first two yearsPast deductions can be reversed and taxed.

Thinking the death benefit is taxableIt's fully exempt under 10(10D). Nominees owe nothing on it.

Tossing out payment recordsITR filing doesn't need proof upfront, but keep it for a possible audit.

Actually claiming it

Salaried

  1. Submit your policy document and premium receipts to your employer early in the financial year.
  2. It gets factored into TDS and shows up in your Form 16.
  3. Check Form 16 reflects it correctly before filing.

Self-employed

  1. Pay premiums traceably (net banking, UPI, card). Cash doesn’t qualify.
  2. File under the old regime to claim 80C (123) or 80D (126).
  3. Declare the premium under Schedule VI-A of your ITR.
  4. Declare rider premiums separately under the applicable section.

Nominees filing an ITR for other income should still declare the exempt death benefit under “Exempt Income,” for transparency, even though it adds no tax liability. Keep the policy document, payment records, PAN of both policyholder and nominee, and (for nominees) the claim settlement statement on hand.

Quick answers

A premium deduction of up to ₹1.5 lakh under Section 80C (now 123), a separate rider deduction under Section 80D (now 126), both old-regime only, and a fully tax-free death benefit under Section 10(10D), available under either regime.
No, it's fully exempt under Section 10(10D) with no upper limit, under both tax regimes. Only what your nominee earns after reinvesting it is taxed.
No. Sections 80C (123) and 80D (126) are old-regime only. The 10(10D) death benefit exemption applies regardless of regime.
If it lapses before two years of premiums are paid, previously claimed 80C (123) deductions can be reversed and added back to that year's taxable income.
Yes, under the same conditions: 80C (123) needs the old regime and Indian taxable income, 10(10D) applies either way. Separately check whether your country of residence taxes the payout.
No. Section 80C (123) only covers premiums for yourself, your spouse and your children.
0%, since September 22, 2025, for individual policies. Group term and group credit life plans still attract GST. It changes what you pay, not the deductions themselves.
Mostly the numbering. 80C became 123, 80D became 126, and 10(10D) moved into Schedule II. The limits, conditions and exemption itself are unchanged.

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Disclaimer: This page is for general educational purposes and should not be relied on as legal or financial advice. Tax laws, deduction limits and section numbers are subject to change, and individual circumstances vary. Please consult a Chartered Accountant or qualified tax professional before making decisions based on this information.