Term insurance is primarily designed to provide financial protection to your family. At the same time, eligible premiums and payouts may also receive favourable tax treatment, depending on the policy and applicable tax rules.
Understanding these benefits can be difficult because different sections of the Income Tax Act apply to premiums, health-related riders and policy payouts. Also, from 1 April 2026, the Income Tax Act, 2025 has replaced the Income Tax Act, 1961, with several provisions being renumbered.
Here is a simple look at how these provisions apply to a term insurance plan and explain the term insurance benefits available to policyholders.
How Section 80C applies to term insurance premiums
Under the Income Tax Act, 1961, Section 80C allowed individuals and Hindu Undivided Families to claim deductions on eligible life insurance premiums, subject to an overall limit of Rs. 1.5 lakh.
From 1 April 2026, the corresponding provision is Section 123 of the Income Tax Act, 2025, read with Schedule XV. An eligible term insurance premium can form part of the Rs. 1.5 lakh deduction, subject to the applicable conditions.
For example, if you pay Rs. 30,000 as an eligible term insurance premium and have not used the deduction limit for other qualifying payments, this amount may form part of your deduction.
However, the Rs. 1.5 lakh limit is not exclusive to insurance. It is a combined limit that may also cover eligible investments and payments such as PPF, ELSS and tuition fees.
The deduction is available under the old tax regime. It cannot be claimed if you file your return under the new tax regime.
Where Section 80D fits in
Section 80D is often confused with term insurance because it also provides tax benefits related to insurance. However, the base premium for a term insurance policy is not deductible under this section.
Section 80D primarily covers eligible health insurance premiums, preventive health check-ups and certain medical expenses for senior citizens. Therefore, it does not generally apply to the life cover component of a term insurance policy.
There can be an exception when a term insurance policy includes a health-related rider, such as a critical illness rider. The premium paid for such a rider may qualify under Section 80D, subject to the applicable conditions.
The limits are Rs. 25,000 per financial year for cover for yourself, your spouse and dependent children, and Rs. 50,000 where senior citizens are involved. The Rs. 5,000 limit for preventive health check-ups is included within these limits, rather than being available separately.
Under the Income Tax Act, 2025, this provision is now covered under Section 126.
How Section 10(10D) applies to term insurance payouts
Section 10 of the Income Tax Act, 1961 listed certain incomes that were excluded from total income. Section 10(10D) provided the exemption framework for qualifying amounts received under life insurance policies.
From 1 April 2026, the corresponding provision is Section 11, read with Schedule II, of the Income Tax Act, 2025.
For a standard term plan, the main payout arises when the life assured dies during the policy term. Amounts received on death continue to receive favourable tax treatment, subject to the applicable provisions. This treatment applies regardless of the tax regime chosen.
Do premium limits affect the tax exemption?
Premium limits can affect the tax treatment of some life insurance policies, particularly those with savings or investment features.
Under Section 10 of the Income Tax Act, life insurance maturity proceeds may qualify for tax exemption, subject to specific conditions. For non-ULIP life insurance policies issued on or after 1 April 2023, maturity proceeds may not qualify for exemption if aggregate annual premiums exceed Rs. 5 lakh. For ULIPs issued on or after 1 February 2021, the comparable threshold is Rs. 2.5 lakh.
There is also a separate condition for policies issued on or after 1 April 2012, under which the annual premium must not exceed 10% of the sum assured.
These restrictions do not apply to amounts received on the death of the life assured. Therefore, maturity payouts and death payouts should not be assumed to receive identical tax treatment.
What changed from 1 April 2026?
The key change is the numbering of the provisions. Section 80C is now Section 123 read with Schedule XV, Section 80D is Section 126, and Section 10(10D) corresponds to Section 11 read with Schedule II.
The underlying benefits, limits and conditions remain the same.
There is also a separate change in the tax cost of individual life insurance premiums. Since 22 September 2025, GST is not applicable to individual life insurance premiums, so the earlier 18% GST no longer applies.
What should you check before claiming a tax benefit?
Start by checking which tax regime you are using, as the premium deduction is available only under the old regime.
Next, check how much of the Rs. 1.5 lakh deduction limit has already been used through other eligible payments or investments. Finally, review your policy documents and the nature of any amount received, as tax treatment can depend on factors such as the policy type, issue date and premium. You can also visit Bajaj Finance to explore financial information and related services.
Understanding these details can help you claim eligible term insurance tax benefits correctly while avoiding assumptions about deductions or exemptions that may not apply to your policy.
