What happens to tax benefits if I switch from Old to New Tax Regime later?

If you switch from the Old Tax Regime to the New Tax Regime, premiums paid after the switch will not qualify under Section 80C. Importantly, the tax-free status of the death benefit under Section 10(10D) is unaffected by the tax regime you choose.

Does the nominee need to pay tax or file ITR for term insurance payout?

No. The death benefit received from a term insurance policy is completely tax-free under Section 10(10D). However, if the nominee already files an ITR for other income, it is advisable (though not mandatory) to disclose the exempt income under the “Exempt Income” section for record-keeping and transparency.

Is term insurance premium fully tax-deductible?

No. Premiums are deductible only under the Old Tax Regime, and only up to ₹1.5 lakh under Section 80C, subject to conditions.

Are term insurance payouts always tax-free?

Yes. Death benefits from term insurance are fully exempt under Section 10(10D), with no upper limit.

Can I claim a tax benefit if I pay premiums for parents?

No. Section 80C allows deductions only for self, spouse, and children.

Term Insurance Tax Benefits in India: 80C, 80D & 10(10D) Explained

Overview

Term insurance tax benefits in India provide three primary benefits under the Income Tax Act 1961. Section 80C (old regime) deductions up to ₹1.5 lakh on premiums paid, Section 80D (old regime) separate deductions for health-related riders, and 100% tax-free death benefits for nominees, under Section 10(10D).

Under the new Income Tax Act, 2025, Section 80C is now Section 123, Section 80D is now Section 126, and Section 10(10D) is now covered under Section 11 (Schedule II).

At Ditto, we believe that the biggest benefit is the 100% tax-free death payout, since even a ₹5 crore claim can reach the nominee without income tax. This guide is for salaried taxpayers, self-employed individuals, NRIs, and families comparing the tax benefits of term insurance.

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.

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.

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.

Conditions to Keep in Mind
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.

For policies issued before April 1, 2012, the older 20% rule applies. If the insured has a disability or specified disease and the policy was issued on or after April 1, 2013, the applicable cap is 15%.

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.

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.

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.

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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.

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.

Old Tax Regime vs. New Tax Regime: What Changes?

Tax Benefit	Old Tax Regime	New Tax Regime
Section 80C premium deduction (now Section 123)	Available	Not Available
Section 80D rider premium deduction (now Section 126)	Available	Not Available
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.

There is one 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.

What Still Attracts GST?

Group life insurance (typically employer-provided)
Group credit life insurance (typically offered by banks)

Does GST Removal Affect Your Tax Benefits?

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.

Note: Read our guide on GST on term insurance for a detailed breakdown.

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 in India offers three main tax benefits. You can claim a deduction of up to ₹1.5 lakh on premiums paid under Section 80C, but only under the old tax regime. If you have a critical illness rider, the premium may also qualify for a separate deduction under Section 80D. Most importantly, the death benefit your nominee receives is 100% tax-free under Section 10(10D), regardless of which tax regime you file under. This benefit applies whether the payout is ₹50 lakh or ₹5 crore.

Is the death benefit from term insurance taxable in India?

No, the death benefit from a term insurance policy is completely tax-free in India. Under Section 10(10D) of the Income Tax Act, 1961, the entire sum paid to the nominee is exempt from income tax, with no upper limit. So even a ₹2 crore payout reaches your family without any tax deduction. This exemption applies under both the old and new tax regimes. However, if the nominee invests that money and earns returns, those returns will be taxed separately under applicable income tax rules.

Can I claim the term insurance premium under Section 80C?

Yes, you can claim term insurance premiums under Section 80C, but only if you file your taxes under the old tax regime. The deduction is capped at ₹1.5 lakh per financial year, and this limit is shared with other 80C instruments like PPF, ELSS, and EPF. For policies issued after April 1, 2012, your annual premium must not exceed 10% of the sum assured to qualify for the full deduction. Most term plans today are priced well within this limit, so this condition rarely creates a problem.

Can I claim term insurance tax benefits under the new tax regime?

The premium deductions under Section 80C and Section 80D are not available under the new tax regime. If you have switched to the new regime, you cannot claim deductions on your term insurance premiums. However, the death benefit exemption under Section 10(10D) still applies regardless of which regime you choose. Ditto recommends not switching to or staying on the old regime solely to claim the 80C deduction. Always run the full tax calculation through the Income tax calculator before deciding which regime works better for your income level.

Does the critical illness rider qualify for the Section 80D tax benefit?

Yes, the premium paid for a critical illness rider on your term insurance policy can be claimed under Section 80D, which covers health-related insurance products. This is separate from the base premium deduction under Section 80C. The overall Section 80D deduction limit is up to ₹1 lakh per year, depending on the age of the insured and the insured's parents. The critical illness rider premium also needs to be separately priced by your insurer for this deduction to apply. The payout on diagnosis is also tax-free in your hands.

What happens to my tax benefits if my term insurance policy lapses?

If your term insurance policy lapses before you have completed two years of premium payments, the tax deductions you previously claimed under Section 80C can be reversed. The amount you claimed as a deduction gets added back to your taxable income in the year of lapse. This is a risk that many policyholders are unaware of. To protect your tax benefits and your coverage, make sure you pay premiums on time and do not let the policy lapse, especially within the first two years of the policy term.

Can NRIs claim term insurance tax benefits in India?

Yes, NRIs with taxable income in India can claim the same term insurance tax benefits as resident Indians. The Section 80C deduction of up to ₹1.5 lakh applies if they file under the old tax regime. The death benefit exemption under Section 10(10D) is also available. However, NRIs should also check whether their country of residence taxes foreign insurance payouts, whether a DTAA offers relief, and whether reporting rules such as FBAR/FATCA apply to their Indian insurance policies.

What is GST on term insurance premiums in 2025?

As of September 22, 2025, individual term insurance policies in India are subject to 0% GST. Before this change, an 18% GST was applied to the base premium, adding ₹3,600 per year to a ₹20,000 gross annual premium. That cost is now eliminated for individual term plans. Group term insurance and group credit life insurance are still subject to GST. The removal of GST does not affect your Section 80C, Section 80D, or Section 10(10D) tax benefits. It simply reduces the total amount you pay each year, making term insurance more affordable overall.

Can I claim my parents' term insurance premium under Section 80C?

No, you cannot claim your parents' term insurance premium under Section 80C. The deduction is available only for premiums paid for yourself, your spouse, and your dependent children. This is a common mistake that can lead to incorrect tax filings. Your parents would need to claim their own premium deductions under Section 80C if they are filing taxes separately. Based on the experience of Ditto's advisors working with clients, this misunderstanding comes up often, especially among people who support their parents financially and assume all insurance premiums qualify under 80C.

What changed for term insurance tax benefits in the new Income Tax Act 2025?

The new Income Tax Act, 2025, does not change the tax benefits available on term insurance. It only renumbers the relevant sections. Section 80C is now Section 123, Section 80D is now Section 126, and Section 10(10D) is now covered under Section 11 (Schedule II). The deduction limits, eligibility conditions, and the death benefit exemption all remain the same. The new Act is effective from April 1, 2026. For your FY 2025-26 ITR filing, which is due in July 2026, the old section numbers still apply, so nothing changes in practice for this filing cycle.

Is the TROP maturity payout tax-free?

Not always. The death benefit from a term plan is tax-free under Section 10(10D), but TROP maturity proceeds are treated differently. Since TROP plans have higher premiums, the annual premium may exceed 10% of the sum assured. If that happens, the maturity amount may become fully taxable as income from other sources. This is one reason Ditto's advisors usually recommend pure term plans over TROP. The “return” in TROP is costlier and may not even be tax-free.

Does Section 80C apply only during the premium-paying years?

Yes, the Section 80C deduction applies only in the financial years in which you actually pay premiums. For example, if you choose a 10-pay term plan and finish all premiums by age 45, you can claim the deduction only for those 10 years. After that, the life cover continues, but there is no further 80C deduction. However, the Section 10(10D) death benefit exemption remains available for the full policy term.

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Last updated on: 29 May, 2026