Term insurance in India offers tax benefits on both premiums and death payouts. Under the old tax regime, premiums can qualify for deductions under Sections 80C and 80D, while the death benefit remains fully tax-free under both tax regimes.
Premium Deductions and Payout Exemptions
Section 80C (Section 123): Claim up to ₹1.5 lakh annually for premiums paid for yourself, your spouse, or your children. For policies issued after April 1, 2012, the premium should not exceed 10% of the sum assured.
Section 10(10D) (Section 11, Schedule II): Death benefits are completely tax-free, with no upper limit, under both tax regimes.
Section 80D (Section 126): Premiums for eligible health-related riders, such as critical illness riders, can qualify for a separate deduction under the old regime.
Conditions to Keep in Mind: If the policy lapses before you pay two years of premiums, previously claimed deductions may be reversed.
Most people buy term insurance for one reason: to make sure their family is financially protected if something happens to them. And it is the right reason to buy it.
But here’s what most people overlook. Term insurance is one of the very few financial products in India that gives you a tax benefit twice: once every year while you pay premiums, and again when your family receives the claim.
In this guide, we walk you through every term insurance tax benefit in India, the applicable sections, the old vs new regimes, the GST impact, common mistakes, and the steps to claim a tax deduction.
Confused about how to claim the term life insurance tax benefits? Book a free call or chat on WhatsApp with Ditto’s IRDAI-certified advisors.
Key Term Insurance Tax Benefits
Tax Benefit
Relevant Section (Old / New)
Tax Regime
Benefit
Deduction on the Premium Paid
Section 80C / Section 123
Old Regime Only
Up to ₹1.5 Lakh per Year
Deduction on Health-Based Rider Premium
Section 80D / Section 126
Old Regime Only
Up to ₹1 Lakh per Year
Tax-Free Death Benefit to the Nominee
Section 10(10D) / Section 11 (Schedule II)
Both Regimes
Fully Exempt, No Upper Limit
Term Insurance Tax Benefits Under Section 80C (Now Section 123)
Section 80C of the Income Tax Act, 1961 (old regime), now renumbered as Section 123 under the Income Tax Act, 2025 (effective April 1, 2026), is where most people start when thinking about tax-saving instruments. Term insurance premiums qualify here, alongside Employees’ Provident Fund (EPF), Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS), National Savings Certificate (NSC), and several other investments.
Note: The deduction limits and benefits are unchanged. Only the section number has changed under the new law.
Conditions to Keep in Mind
What Can You Claim?
What Can You Claim?
The annual premium you pay for a term insurance policy is eligible for a deduction under Section 80C, up to the overall cap of ₹1.5 lakh per financial year. This cap is shared across all 80C instruments, so if you’ve already invested ₹1.5 lakh in PPF or ELSS, the term insurance premium does not give you additional room.
Premium Cap Rule
For policies issued on or after April 1, 2012, your premium must not exceed 10% of the sum assured to qualify for the full deduction. For instance, if your sum assured is ₹1 crore, your annual premium should not exceed ₹10 lakh for the full deduction to apply. Most term plans today are priced well within this cap, so this is rarely an issue.
Lapse Risk
If your policy lapses before you’ve paid two years of premiums (for regular premium policies), the tax deductions you previously claimed can be reversed and added back to your taxable income in the year of lapse.
Exceptions to Premium Cap Rule
For policies issued on or after April 1, 2012, your premium must not exceed 10% of the sum assured to qualify for the full deduction. For instance, if your sum assured is ₹1 crore, your annual premium should not exceed ₹10 lakh for the full deduction to apply. Most term plans today are priced well within this cap, so this is rarely an issue.
How Much Can You Actually Save? Imagine you pay ₹18,000 per year for your term insurance and fall in the 30% tax slab. Claiming this under Section 80C saves you approximately ₹5,400 in taxes that year (30% of ₹18,000). If you fully utilize the ₹1.5 lakh limit across all 80C instruments, the tax saving can reach ₹45,000 per year. Over a 30-year policy tenure, that adds up to a significant sum.
Note: While purchasing a term plan, besides prices, you should also focus on how a particular life insurer is performing. If you like making decisions based on data, Ditto Data Lab gives you access to term insurance information collected from official disclosures and carefully organized by our team.
Term Insurance Tax Benefits Under Section 80D (Now Section 126)
Section 80D of the Income Tax Act, 1961 (old regime), now renumbered as Section 126 under the Income Tax Act, 2025, allows you to claim deductions on premiums paid for health insurance and health-related products. Certain term insurance riders fall under this section.
Tax Benefits on Term Insurance Riders
Not all riders carry the same tax treatment. Here is a breakdown of the riders we usually discuss at Ditto and how they are taxed:
Rider
Premium Deduction
Payout Treatment
Critical Illness Rider
Section 80D, within applicable limits
Lump-sum payout on diagnosis is tax-free
Accidental Death / Disability Rider
Clubbed with base premium under Section 80C
Payout due to accidental death or permanent disability is tax-exempt
Waiver of Premium Rider
If it's illness-based, then Section 80D, if it's only disability based then clubbed with base premium under Section 80C
Since premiums get waived off, there are no tax implications
Note: Always check whether your rider is bundled with the base policy or separately priced. This affects how the premium is treated for tax purposes.
Talk to an expert today and find the right insurance for you.
Tax-Free Death Benefit: Section 10(10D) Explained
This is, without any doubt, the most valuable term insurance tax benefit. Unlike the premium deductions, it applies regardless of which tax regime you file under.
Under Section 10(10D) of the Income Tax Act, 1961, now moved to Section 11 (Schedule II) of the Income Tax Act, 2025, the death benefit received by the nominee is completely exempt from income tax.
Whether your family receives ₹50 lakh or ₹5 crore, the entire amount is tax-free in their hands. They do not need to pay tax on it, nor do they need to declare it as taxable income.
Without this exemption, a ₹2 crore payout could have triggered a tax bill of well above ₹60 lakh or more for a nominee in the 30%+ slab. That is the real value of Section 10(10D).
One Important Note
The Section 10(10D) exemption applies to the death benefit payout itself. Once the nominee receives the money and invests it, any capital gains, interest, or dividends earned on those investments are taxable under applicable tax laws. The exemption covers only what the insurer pays out, not what that money earns afterwards.
Note: Both the new and the old Income Tax Acts fully preserve this exemption. Switching to the new tax regime does not affect your nominee’s ability to receive the death benefit tax-free.
Section 10(10D) death benefit exemption (now Section 11, Schedule II)
Available
Available
Who is Qualified for Term Insurance Tax Benefits?
For Section 80C (Now Section 123) Deduction
You are a resident Indian or Non-Resident Indian (NRI) with taxable income in India.
You are a Hindu Undivided Family (HUF) with taxable income in India.
You file taxes under the old tax regime.
You pay premiums for yourself, your spouse, or your children.
Your annual premium does not exceed 10% of the sum assured.
The policy has not lapsed before completing two years of premium payments.
For Section 80D (Now Section 126) Deduction
You file taxes under the old tax regime.
You have a critical illness or other health-based rider attached to your term plan.
The rider premium is separately identified and priced by the insurer.
For Section 10(10D) Death Benefit Exemption
The nominee receives the death benefit from a valid term insurance policy.
No specific regime condition, this applies to everyone.
Tax Benefits for NRIs on Term Insurance
If you are an NRI with taxable income in India, you can claim the same term insurance tax benefits as a resident Indian, under the same conditions.
Section 80C (now Section 123): Deduction of up to ₹1.5 lakh on premiums paid, if you file under the old regime and have income taxable in India.
Section 10(10D) (now Section 11, Schedule II): The death benefit paid to your nominee is fully tax-free in India, regardless of regime.
Important Caveat
As an NRI, you also need to check the tax laws of the country where you live, especially if you plan to transfer money outside India. Some countries may tax life insurance payouts or treat premium payments differently. So, even if the payout is tax-exempt in India, you may still have to follow the tax rules of your country of residence.
GST on Term Insurance Premiums: What You Need to Know
As of September 22, 2025, individual term insurance policies in India are subject to 0% GST. This is a meaningful change that directly reduces what you pay.
Earlier, an 18% GST was applied to your base premium. For a ₹20,000 annual premium, that added ₹3,600 in taxes every year. That cost is now gone for individual policies.
No. The removal of GST does not change your Section 80C, Section 80D, or Section 10(10D) benefits. Earlier, the total amount paid (base premium + GST) was typically claimed within the ₹1.5 lakh 80C limit.
Common Mistakes That Can Cost You Your Tax Benefits
Common Mistake
How to Avoid It
Claiming 80C deductions under the new tax regime
Confirm your filing regime before claiming deductions. Section 80C/80D benefits are only available under the old regime.
Assuming parent premiums qualify under 80C
Section 80C allows deductions only for self, spouse, and children. Your parents must claim their own premium deductions.
Ignoring the 10% premium-to-sum-assured rule
Ensure your annual premium does not exceed 10% of your sum assured (for policies issued after April 1, 2012).
Letting the policy lapse before 2 years
If the policy lapses before two years of premiums have been paid, prior deductions can be reversed and added to taxable income.
Treating death benefits as taxable income
Death benefits from term insurance are fully exempt under Section 10(10D). Nominees do not pay tax on the payout.
Not keeping the premium payment proofs
Even though ITR filing does not require submitting receipts, keep payment proofs (bank statements, UPI records) for a future audit.
How to Claim Term Insurance Tax Benefits?
For Salaried Individuals
Submit your policy document and premium payment receipts to your employer at the start of the financial year.
Your employer factors this into TDS calculations, and the deduction appears in your Form 16.
Verify that the deduction is correctly reflected in Form 16 before filing your ITR.
For Self-Employed or When Adjusting Directly
Pay premiums through traceable channels such as net banking, UPI, or debit/credit cards. Cash payments do not qualify.
File under the old tax regime to claim 80C and 80D deductions.
Declare term insurance premiums under Section 80C in Schedule VI-A of your ITR form.
Declare health-based rider premiums separately under Section 80D in the same schedule.
Note: If you are a nominee receiving a death benefit and you file an ITR for other income, declare the exempt amount under “Exempt Income” for transparency. This does not create any additional tax liability.
Documents to Keep Handy
Policy document showing the sum assured and annual premium.
Premium payment receipts or bank statements for the financial year.
PAN of policyholder and nominee.
Death claim settlement statement (for nominees).
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Ditto’s Take on Term Insurance Tax Benefits
A completely tax-free payout of ₹1 crore or more is a structural advantage that no other common financial product in India offers at this scale. It applies regardless of tax regime, and your family receives the entire sum without a tax bill. Plan your sum assured with this in mind. Make sure your nominee knows the payout is tax-free.
The premium deduction under Section 80C and Section 80D is useful but regime-dependent. With a growing number of taxpayers opting for the new regime, this benefit is becoming less universally applicable. If you’re on the old regime, the savings are real and worth claiming. But do not choose the old regime just to get this deduction without first running the full tax calculation.
The Bottom Line: Buy term insurance for protection first. The tax benefits are real, structurally significant, and worth understanding in full. But they are the bonus, not the reason. If you need help determining the right coverage amount and plan structure for your situation, our advisors at Ditto are available for free.
Disclaimer: This article is for educational purposes only and should not be solely relied on for legal or financial decisions. Tax laws, interpretations, and section numbers are subject to change. The new Income Tax Act, 2025, is effective April 1, 2026; old section numbers still apply for FY 2025-26 ITR filing (due July 2026). Please consult a Chartered Accountant or qualified tax professional for advice specific to your situation.
Frequently Asked Questions
What are the tax benefits of term insurance in India?
Term insurance offers three main tax benefits. If you follow the old tax regime, premiums can qualify for a deduction of up to ₹1.5 lakh under Section 80C. Premiums for eligible health-related riders, such as a critical illness rider, may qualify under Section 80D. Most importantly, the death benefit paid to your nominee is completely tax-free under Section 10(10D), regardless of whether you choose the old or new tax regime.
Is the death benefit from term insurance taxable in India?
No. The death benefit paid to your nominee is completely tax-free under Section 10(10D), with no upper limit. So whether the insurer pays ₹50 lakh or ₹5 crore, the payout itself is exempt from income tax. This benefit applies under both the old and new tax regimes. However, if your nominee later invests this money, any interest, dividends, or capital gains earned from those investments may be taxable.
Can I claim term insurance premiums under Section 80C?
Yes, but only if you choose the old tax regime. Term insurance premiums qualify within the overall Section 80C limit of ₹1.5 lakh per financial year, which is shared with investments such as EPF, PPF, ELSS, and NSC. For policies issued on or after April 1, 2012, the annual premium should generally not exceed 10% of the sum assured for the full deduction to apply.
Can I claim term insurance tax benefits under the new tax regime?
You cannot claim Section 80C or Section 80D deductions under the new tax regime. So your term insurance premium or eligible rider premium will not reduce your taxable income. However, the death benefit remains completely tax-free under Section 10(10D), irrespective of the tax regime you choose. Don’t pick the old regime only for the insurance deduction. Compare your overall tax liability under both regimes first.
Does a critical illness rider qualify for Section 80D?
It can. If the critical illness rider premium is separately identified by the insurer, it may qualify for a deduction under Section 80D within the applicable limits. This is separate from the Section 80C deduction available on the base term insurance premium. The exact deduction available depends on who is covered and their age, so check how the rider premium is shown in your policy document or premium receipt before claiming it.
What happens to my tax benefits if my term insurance policy lapses?
If your policy lapses before you have paid premiums for two years, the Section 80C deductions claimed earlier can be reversed. The previously deducted amount may be added back to your taxable income in the year the policy lapses. More importantly, a lapsed term plan also means your life cover can stop. So keeping the policy active matters for both your tax benefits and your family’s financial protection.
Can NRIs claim term insurance tax benefits in India?
Yes. NRIs with taxable income in India can claim eligible term insurance deductions under the same broad rules as resident Indians. The Section 80C deduction is available only under the old tax regime, while the death benefit remains tax-free in India. However, the country where you live may have its own rules for taxing or reporting foreign insurance policies and payouts. So it’s worth checking the local tax rules as well.
Is GST charged on term insurance premiums?
Individual term insurance policies have been subject to 0% GST since September 22, 2025. Earlier, an 18% GST was charged on the premium. This means individual policyholders now pay less for the same base premium. However, certain group life and group credit life policies can still attract GST. The GST change does not alter your Section 80C, Section 80D, or death-benefit tax treatment. It simply reduces the amount you pay for an individual term plan.
Can I claim my parents’ term insurance premium under Section 80C?
No. Section 80C allows you to claim eligible life insurance premiums paid for yourself, your spouse, or your children. Premiums paid for your parents do not qualify for a deduction in your hands under Section 80C. If your parents are eligible taxpayers and pay for their own policy, they can claim the applicable deduction themselves, subject to the usual Section 80C conditions.
What changed under the Income Tax Act, 2025?
The core tax benefits of term insurance have not changed. What has changed is the section numbering. Under the Income Tax Act, 2025, Section 80C has been renumbered as Section 123, Section 80D as Section 126, and the Section 10(10D) exemption is covered under Section 11 read with Schedule II. The underlying deduction limits and the tax-free treatment of eligible death benefits remain broadly the same.
Is the maturity payout from a TROP tax-free?
Not necessarily. A Term Return of Premium (TROP) plan pays back eligible premiums if you survive the policy term, but the maturity amount does not automatically receive the same tax treatment as a death benefit. If the policy fails the applicable premium-to-sum-assured conditions, the maturity proceeds may become taxable. This is different from a death claim, which is generally exempt. Tax treatment is therefore worth checking before buying a TROP plan primarily for its maturity return.
Does Section 80C apply only during the premium-paying years?
Yes. You can claim a Section 80C deduction only in the financial years in which you actually pay an eligible premium. For example, if you choose a 10-pay term plan, you can claim the deduction only during those 10 premium-paying years. Your life cover may continue for much longer, but no fresh Section 80C deduction is available once premium payments stop. The death-benefit exemption continues for the policy term.
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