Term insurance can provide financial protection to your family and may offer tax benefits under Indian law. Eligible premiums can qualify for deductions under the old tax regime, subject to applicable limits, while death benefits are generally exempt from income tax under the relevant conditions. From 1 April 2026, the Income-tax Act, 2025 governs the new tax framework. The treatment depends on the type of policy, the premium paid, the tax regime selected and the circumstances of the payout.
Quick Answer: What Are the Tax Benefits of Term Insurance?
Term insurance may provide two main tax benefits in India: an eligible premium deduction under the old tax regime and an income-tax exemption for qualifying death benefits. Under the Income-tax Act, 2025, the premium deduction framework is carried forward under Section 123, subject to conditions and an aggregate limit of ₹1.5 lakh for eligible payments. The new tax regime generally does not allow this deduction. Individual life insurance premiums are also exempt from GST from 22 September 2025, subject to the applicable rules.
Key Takeaways
- Premium deduction: Eligible term insurance premiums may qualify under Section 123 of the Income-tax Act, 2025, when the old tax regime applies.
- Deduction limit: The overall ₹1.5 lakh limit is shared with other eligible payments and investments; it is not exclusive to term insurance.
- New tax regime: The premium deduction under Section 123 is not available under the new concessional tax regime.
- Death benefit: Qualifying death benefits are generally exempt from income tax, including under rules that address high-premium policies.
- Maturity benefit: Standard term insurance usually has no maturity payout. Return-of-premium plans have different terms and tax considerations.
- GST: Individual life insurance policies, including individual term plans, are exempt from GST from 22 September 2025 under the notified change.
- Tax rules can differ: Policy issue date, premium-to-sum-assured ratio, policy structure and the nature of the payout can affect the treatment.
What Is the Tax Treatment of Term Insurance in India?
The tax treatment of term insurance involves more than one rule. It is useful to separate the premium you pay from the benefit your family may receive.
The main areas to understand are:
- Premium deductions: Whether your eligible premium can be deducted from taxable income under the applicable tax regime.
- Death benefit exemption: Whether the amount paid to the nominee or eligible claimant is exempt from income tax.
- Return-of-premium benefits: Whether an amount received at the end of a policy qualifies for an exemption or is taxable.
- GST on premiums: Whether GST applies to the insurance premium.
- Tax compliance: Whether you need to retain receipts, provide information to your employer or report a taxable payout.
These rules are not identical. A premium deduction depends on the taxpayer’s eligibility and tax regime, while the tax treatment of a payout depends on the applicable exemption provisions and the type of benefit received.
Which tax law applies from April 2026?
The Income-tax Act, 2025 came into force on 1 April 2026, replacing the Income-tax Act, 1961 for the new framework. The government stated that the new Act reorganises and simplifies the legislation without changing the underlying tax policy through that transition alone.
This matters because many older articles refer to Section 80C and Section 10(10D). Those are familiar references under the 1961 Act. For tax years governed by the 2025 Act, the corresponding provisions need to be checked under the new numbering.
For the current framework:
- Section 123 of the Income-tax Act, 2025 covers the relevant deduction for specified payments, including eligible life insurance premiums, subject to conditions.
- Schedule II to the Income-tax Act, 2025 contains conditions for income that is not included in total income, including qualifying amounts received under life insurance policies.
When reviewing an older policy or a tax return for an earlier year, the law applicable to that tax year may still be the 1961 Act. Always match the provision to the relevant tax year rather than replacing every old section reference without checking.
Can You Claim a Tax Deduction on Term Insurance Premiums?
Yes, eligible life insurance premiums may qualify for a deduction under Section 123 of the Income-tax Act, 2025, when you use the old tax regime and satisfy the applicable conditions.
The deduction can apply to qualifying premiums paid for life insurance on:
- Your own life.
- Your spouse’s life.
- Your child’s life, subject to the statutory conditions.
The premium must meet the relevant eligibility rules, and the deduction is subject to an overall limit of ₹1.5 lakh for specified payments covered by the provision. This limit is shared with other eligible items; it is not a separate ₹1.5 lakh allowance for term insurance alone.
How does the deduction work?
Suppose you pay ₹30,000 in eligible term insurance premiums during a tax year. If you use the old tax regime, meet the conditions and have sufficient room under the overall deduction limit, the premium may qualify for a deduction.
The deduction reduces the amount of income considered for tax purposes; it is not a refund of the full premium.
For example, if your eligible deduction is ₹30,000 and your applicable marginal tax rate is 20%, the potential income-tax reduction before considering cess and other factors could be ₹6,000. Your actual tax saving depends on your taxable income, applicable rates, other deductions and the final tax calculation.
What is the maximum deduction?
The aggregate limit under Section 123 is ₹1.5 lakh for the relevant specified payments. It may include eligible life insurance premiums and other qualifying payments, such as certain provident fund contributions and tuition fees, subject to the law’s conditions.
| Eligible payment | How it affects the limit |
| Eligible term insurance premium | Uses part of the shared deduction limit |
| Eligible life insurance premium for a spouse or child | May use part of the same limit, subject to conditions |
| Qualifying provident fund contributions | May use part of the same limit |
| Other eligible payments under Section 123 | May use the remaining limit, subject to the relevant rules |
If your eligible provident fund contributions and other qualifying payments already use the full ₹1.5 lakh limit, paying an additional term insurance premium will not create another deduction under this provision.
Are Term Insurance Premiums Tax-Deductible Under the New Tax Regime?
Generally, no. Section 123 deductions for eligible life insurance premiums are not available under the new concessional tax regime governed by Section 202 of the Income-tax Act, 2025.
This means you should compare your overall tax position under both regimes rather than choosing a tax regime solely because you pay a term insurance premium.
| Tax consideration | Old tax regime | New tax regime |
| Eligible term insurance premium deduction | May be available under Section 123 | Not available under Section 123 |
| Maximum Section 123 deduction | Shared aggregate limit of ₹1.5 lakh, subject to conditions | Not available |
| Death benefit exemption | Depends on the applicable exemption rules | Depends on the applicable exemption rules |
| GST on individual term insurance premium | Exempt under the applicable GST notification | Exempt under the applicable GST notification |
The death benefit exemption and GST treatment are separate from the premium deduction. Choosing the new tax regime does not, by itself, make an otherwise qualifying life insurance death benefit taxable.
Which tax regime should you choose?
The answer depends on your total income, eligible deductions, exemptions and other tax circumstances. If you claim eligible insurance premiums, calculate your tax under both regimes using the current rules before making a decision.
Do not buy a term plan only to obtain a tax deduction. Its primary purpose is to protect your family’s financial future.
Is the Term Insurance Death Benefit Tax-Free?
In general, a qualifying death benefit paid under a term insurance policy is exempt from income tax under the applicable life insurance exemption rules.
Under the Income-tax Act, 2025, Schedule II covers sums received under life insurance policies, including amounts allocated by way of bonus, subject to specified conditions and exclusions. The high-premium conditions described in the schedule include an exception for amounts received on the death of a person. Keyman insurance and other specifically excluded receipts require separate consideration.
For an ordinary individual term insurance policy, the death benefit is generally exempt. However, the precise tax treatment should be checked if the policy is a Keyman policy, has an unusual ownership arrangement or involves another special circumstance.
Example: A ₹1 crore term insurance payout
Suppose a person holds a qualifying individual term insurance policy with a death benefit of ₹1 crore. The insured person dies while the policy is active, and the insurer approves the claim.
The ₹1 crore death benefit would generally be exempt from income tax under the applicable life insurance exemption provisions, subject to the policy structure and statutory exclusions.
The family should retain the policy documents, claim settlement statement and other relevant records. If the policy is linked to a business, has been assigned or involves a special arrangement, obtain advice on the exact tax treatment.
Does the nominee pay tax on the payout?
For an ordinary qualifying term insurance death benefit, the nominee generally does not pay income tax on the amount received under the applicable exemption. The nominee’s legal rights and the tax treatment are related but separate questions: nomination, assignment and succession arrangements can affect who is entitled to receive the money.
Read Nominee in Term Insurance: Rules, Rights and How to Change
Does the Premium-to-Sum-Assured Ratio Affect Tax Benefits?
Yes. The amount of premium compared with the sum assured can affect eligibility for a deduction and the tax treatment of amounts received under a life insurance policy.
The rules differ depending on when the policy was issued and the type of policy.
For premiums paid under eligible life insurance policies, the deduction provisions impose limits on the premium relative to the actual capital sum assured. Under the current framework, the applicable limits generally depend on the policy’s issue date and the circumstances covered by the law. For example, Schedule XV of the Income-tax Act, 2025 specifies relevant premium-to-sum-assured conditions for deductions.
For qualifying maturity benefits, Schedule II separately sets conditions for exemption, including premium-to-sum-assured ratios and high-premium thresholds for specified policy categories.
These tests should not be confused with the death benefit exemption.
Why does this matter for a term insurance policy?
A standard term plan is designed primarily to provide a death benefit rather than a maturity payout. Therefore, its tax position may differ from that of a savings-oriented life insurance plan or a return-of-premium product.
For a policy that returns premiums or provides another survival benefit, check the exact policy terms and the tax provisions that apply to that payout. Do not assume that the rules for a standard term plan automatically apply to every variant.
Are High-Premium Life Insurance Policies Taxable?
Some high-premium life insurance products may not qualify for the usual exemption on maturity proceeds. The treatment depends on the policy type, issue date, premium amount, premium-to-sum-assured ratio and other statutory conditions.
The current framework distinguishes between unit-linked insurance policies (ULIPs) and other life insurance policies.
| Policy category | Relevant maturity-exemption condition | Important point |
| ULIPs issued from 1 February 2021 | The aggregate annual premium threshold of ₹2.5 lakh and other applicable conditions may affect exemption eligibility | The rules consider relevant premiums across qualifying policies |
| Non-ULIP life insurance policies issued on or after 1 April 2023 | The aggregate annual premium threshold of ₹5 lakh and other applicable conditions may affect exemption eligibility | The rules consider relevant premiums across qualifying policies |
| Qualifying death benefits | Specific high-premium conditions include an exception for amounts received on death | Other statutory exclusions, including Keyman insurance, still require consideration |
These thresholds are not a universal rule that every policy with a premium above the specified amount is taxable in every circumstance. The precise outcome depends on the policy and statutory conditions. The Income-tax Department’s official material explains the relevant exemptions and premium thresholds.
Does the high-premium rule make every term insurance payout taxable?
No. A qualifying death benefit under an ordinary term insurance policy is generally exempt, even where the high-premium conditions applicable to certain survival benefits would otherwise affect exemption eligibility. Keyman insurance and other excluded arrangements must be assessed separately.
If you have a return-of-premium term plan or a policy with a substantial survival benefit, obtain a tax review before assuming that the full maturity amount is exempt.
Is a Return-of-Premium Term Insurance Plan Tax-Free at Maturity?
A return-of-premium term plan may return specified premiums if the insured survives the policy term, subject to the contract’s conditions.
Its tax treatment is not necessarily identical to that of a standard term insurance death benefit.
For a qualifying policy, the maturity amount may be exempt if it satisfies the applicable conditions under Schedule II of the Income-tax Act, 2025. However, high-premium limits, premium-to-sum-assured requirements and other statutory exclusions can affect eligibility.
Before buying a return-of-premium plan, check:
- Which premiums are eligible to be returned.
- Whether any rider premiums or other charges are excluded from the refund.
- The conditions that apply if the policy is surrendered or discontinued.
- Whether the maturity benefit satisfies the applicable tax-exemption rules.
- How the premium compares with that of a standard term plan offering the same life cover.
A return of premiums is not necessarily an investment gain. Compare the total premium paid, the amount returned and the value of the life cover provided during the policy term.
For a related comparison, read Term Insurance: Compare Plans, Premium and Cover.
Is GST Charged on Term Insurance Premiums?
Individual life insurance policies, including individual term insurance, are exempt from GST with effect from 22 September 2025 under the notified change.
The Department of Financial Services confirms that the exemption applies to individual life insurance policies. It also explains that employer-sponsored group life insurance and other group policies continue to have different GST treatment.
This means an individual buying an eligible term insurance policy should generally not have GST added to the premium under the applicable exemption.
What should you check on your premium receipt?
- Whether the policy is an individual or group policy.
- The date on which the premium payment is made.
- Whether the transaction falls within the applicable exemption.
- The premium amount and any other separately listed charges.
- Any clarification provided by the insurer about the applicable GST treatment.
The tax treatment of an employer-provided group term plan can differ from that of an individual policy. Do not assume that all insurance arrangements are exempt simply because they provide life cover.
Read GST on Term Insurance Premium
What Documents Should You Keep to Claim Term Insurance Tax Benefits?
Maintaining clear records can help you establish eligibility for a deduction and respond to questions about a tax return.
Keep the following documents where relevant:
- Premium receipts: Proof of eligible payments made during the tax year.
- Policy schedule: Shows the policyholder, insured person, sum assured and policy details.
- Payment records: Bank statements or other records confirming payment.
- Tax records: Information supplied to your employer or included in your income-tax return.
- Insurer statements: Documents relating to maturity benefits, surrender proceeds or claim payments.
- Claim settlement documents: Relevant records if a death benefit has been paid.
- Assignment or nomination records: Documents that may help establish the legal arrangement under which a benefit is paid.
For salaried taxpayers, the employer may request evidence of eligible investments or payments when estimating tax deductions. If you file your own return, reconcile the amounts claimed with your payment records and the rules applicable to that tax year.
Do not claim a deduction simply because a premium was paid. Confirm that the policy and payment qualify under the applicable law and tax regime.
How Do You Claim a Term Insurance Premium Deduction?
The process depends on whether you are a salaried employee or file your tax return independently, but the basic checks are similar.
- Confirm which tax regime applies to you.
- Identify eligible term insurance premiums paid during the tax year.
- Check whether the policy and payment meet the statutory conditions.
- Add the qualifying amount to your other eligible payments under the applicable deduction provision.
- Check the aggregate deduction limit.
- Retain receipts and policy documents.
- Enter the eligible amount in the relevant part of your tax return, following the current forms and instructions.
For tax years governed by the Income-tax Act, 2025, check the current forms and rules rather than relying exclusively on an older tax-return guide that refers to Section 80C.
A worked example
Suppose a taxpayer using the old tax regime has:
- Eligible term insurance premium: ₹25,000.
- Other qualifying payments under Section 123: ₹1,10,000.
- Total eligible payments: ₹1,35,000.
If all payments satisfy the relevant conditions, the combined amount may qualify within the ₹1.5 lakh limit. The premium does not create an additional deduction above that limit.
The tax saving depends on the taxpayer’s applicable tax rate and overall tax position. A deduction of ₹25,000 does not mean that ₹25,000 is refunded.
What Is the Difference Between Term Insurance Tax Benefits and Other Life Insurance Tax Benefits?
Different life insurance products can have different premium structures and payout conditions. A term insurance policy should not automatically be assessed using the same assumptions as a ULIP or an endowment plan.
| Product | Premium deduction | Payout tax treatment |
| Standard term insurance | Eligible premiums may qualify under the applicable deduction rules and tax regime | Qualifying death benefits are generally exempt |
| Return-of-premium term insurance | Eligible premiums may qualify, subject to the rules | Maturity or survival benefits must satisfy the applicable exemption conditions |
| Endowment policy | Eligible premiums may qualify, subject to the rules | Maturity benefits depend on exemption conditions, including applicable premium thresholds |
| ULIP | Eligible premiums may qualify, subject to the rules | Exemption depends on the applicable premium-to-sum-assured and aggregate-premium conditions; taxable proceeds may have a different tax treatment |
The table is a general guide. Actual tax treatment depends on policy issue date, policy terms, premiums, the nature of the receipt and the law applicable to the relevant tax year.
If your main goal is financial protection for dependants, compare term insurance on the basis of its cover, premium and policy conditions. Do not choose an investment-linked policy solely because you expect a tax advantage.
What Other Tax and Regulatory Rules Should Term Insurance Buyers Know?
Tax exemptions are only one part of choosing and maintaining a policy. You should also understand the rules governing disclosure, nomination and policy documents.
Full disclosure of medical information
Provide accurate health and lifestyle information when completing the proposal form. Incorrect disclosures may affect underwriting and lead to disputes during a claim.
Read Why Full Disclosure Matters in Term Insurance
The free-look period
Eligible life insurance policies have a free-look period under the applicable regulatory framework. During this period, the policyholder can review the contract and may request cancellation subject to the relevant conditions and deductions.
Check the free-look period, procedure and permitted deductions in your policy documents.
Read Free Look Period in Term Insurance
Nomination and assignment
Nomination records the person designated to receive policy proceeds, subject to the policy and applicable law. Assignment can change the legal rights associated with the policy.
If you are considering an assignment or a nomination arrangement for your spouse or children, understand the consequences before making the change.
Read Nominee in Term Insurance: Rules, Rights and How to Change and MWP Act Policy: Protecting Term Cover for Wife and Children
Claims and contestability
Insurance claims are assessed under the policy contract and applicable law. Accurate disclosure and complete records help reduce avoidable disputes.
Read Section 45 of the Insurance Act: Why Claims Can Be Contested and IRDAI Rules Every Term Insurance Buyer Should Know
Final Summary
Term insurance can provide valuable financial protection and may offer tax benefits, but the rules depend on the type of benefit, policy conditions and applicable tax regime.
The main points to remember are:
- Eligible premiums may qualify for a deduction under Section 123 of the Income-tax Act, 2025, when the old tax regime applies.
- The deduction is subject to a shared ₹1.5 lakh limit and other statutory conditions.
- Qualifying death benefits are generally exempt from income tax, subject to specific exclusions.
- Maturity benefits under return-of-premium or other life insurance products require a separate tax assessment.
- Individual life insurance premiums are exempt from GST under the applicable rules from 22 September 2025.
Choose term insurance primarily for the protection it provides to your family. Before claiming a deduction or assessing a payout, check the current law, policy wording and your individual tax position.
For a broader comparison of cover and premiums, visit Term Insurance: Compare Plans, Premium and Cover. If you need help understanding which policy details to compare, you can contact PolicySutra.
Frequently Asked Questions
1. Can I claim a tax deduction on term insurance premiums in India?
Eligible premiums may qualify for a deduction under Section 123 of the Income-tax Act, 2025, when you use the old tax regime and meet the applicable conditions. The deduction falls within a shared ₹1.5 lakh limit for specified eligible payments.
2. Is a term insurance death benefit tax-free?
A qualifying death benefit under an ordinary individual term insurance policy is generally exempt from income tax under the applicable life insurance exemption rules. Special arrangements, including Keyman insurance, may receive different treatment.
3. Can I claim term insurance tax benefits under the new tax regime?
The premium deduction under Section 123 is not available under the new concessional tax regime. However, the tax treatment of a qualifying death benefit is a separate matter and is not automatically changed by your choice of tax regime.
4. Is GST applicable to individual term insurance premiums in 2026?
Individual life insurance policies, including eligible individual term insurance policies, are exempt from GST from 22 September 2025 under the notified change. Group life insurance policies have different treatment, so check the type of policy and the insurer’s premium breakdown.
5. Are return-of-premium term insurance payouts tax-free?
Not automatically. The tax treatment depends on the policy’s issue date, premium-to-sum-assured ratio, applicable aggregate-premium thresholds and other statutory conditions. Review the contract and the relevant provisions before assuming that the maturity amount is exempt.
6. Do I need to submit term insurance premium receipts with my tax return?
You should retain premium receipts and policy documents as evidence. The exact documentation and reporting requirements depend on your tax circumstances and the current filing rules. Follow the instructions for the applicable tax year.
Sources and References
- Income Tax Department, Government of India – Income-tax Act, 2025. Official legislation, including the deduction framework under Section 123 and Schedule II’s conditions for income received under life insurance policies. Read the Act.
- Income Tax Department – Section 123 and eligible deductions. Official information confirming the ₹1.5 lakh aggregate deduction limit and the restriction under the new tax regime. Official tax information.
- Income Tax Department – Schedule II: Income Not to Be Included in Total Income. Official exemption conditions for life insurance receipts, including premium-to-sum-assured and high-premium policy rules. Read Schedule II.
- Press Information Bureau, Government of India – Income-tax Act, 2025 comes into force from 1 April 2026. Official announcement confirming the commencement of the new Act. Read the announcement.
- Department of Financial Services, Ministry of Finance – Exemption of GST on Individual Life and Health Insurance Policies. Official guidance confirming the GST exemption effective 22 September 2025 and the distinction between individual and group policies. Read the official guidance.
- Central Board of Direct Taxes – Circular No. 15 of 2023. Historical guidance on life insurance maturity exemptions and high-premium policy rules under the Income-tax Act, 1961. Use it for the relevant historical tax periods, alongside the current Act. Read the circular.
Aprna
Aprna is an insurance expert with 8 years of experience across edtech, fintech, and insurance. She specializes in health, term life, and motor insurance, simplifying complex concepts to help readers make informed decisions.
Sarvesh Bhatt
Insurance Industry & Product Head Reviewer
An insurance industry expert specializing in health, term life, and motor insurance, ensuring content accuracy, transparency, and regulatory alignment.
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