Short answer: Term insurance gives you three tax benefits. You can deduct the premiums under Section 80C (up to ₹1.5 lakh a year), deduct any health-rider premiums under Section 80D, and — most importantly — your family receives the death benefit completely tax-free under Section 10(10D). The premium deductions apply only under the old tax regime, but the tax-free payout applies whichever regime you're on.
Here's the honest framing before we get into numbers: term insurance is bought to protect the people who depend on you, not to save tax. The tax benefits are a genuine bonus. But the benefit that truly matters — the one your family will actually feel — is the tax-free payout, and that's only "effortless" if the claim gets settled cleanly. We'll come back to that.
A quick note on our role. MITRA is an insurance advisory (IRDAI Reg. No. CA0785), not a tax consultant. This guide is educational. Tax outcomes depend on your personal situation, so please confirm the specifics with a qualified Chartered Accountant before you file.
The three tax benefits at a glance
| Benefit | What it covers | Limit | Available in new regime? |
|---|---|---|---|
| Section 80C (now Sec 123) | Term insurance premiums you pay | Up to ₹1.5 lakh/year | ❌ No — old regime only |
| Section 80D (now Sec 126) | Premiums for health/critical-illness riders | Within your 80D limit (₹25,000 / ₹50,000) | ❌ No — old regime only |
| Section 10(10D) (now Sec 11, Sch. II) | The death benefit paid to your nominee | Entire amount, tax-free | ✅ Yes — both regimes |
The first two lower the tax you pay while you're alive and paying premiums. The third protects the money your family receives — and it's the one that survives the move to the new regime.
Section 80C: deducting your premiums
Under Section 80C, the premiums you pay on a term insurance policy — for yourself, your spouse or your children — are deductible from your taxable income, up to a combined ₹1.5 lakh per financial year. That ₹1.5 lakh is shared with other 80C items like PPF, ELSS, EPF and home-loan principal, so term premiums compete for the same bucket.
Two conditions matter:
- Old regime only. Like most deductions, 80C disappears under the new (default) tax regime.
- The 10% rule. For policies issued on or after 1 April 2012, your annual premium must not exceed 10% of the sum assured to claim the full deduction. For a pure term plan this is almost never a problem — a large cover for a small premium is the whole point — but it's worth knowing if you're looking at premium-heavy variants.
Section number update. Under the Income Tax Act, 2025 (in force from 1 April 2026), Section 80C is renumbered Section 123. The ₹1.5 lakh limit and the conditions are unchanged. We use "80C" because that's what people search and what your premium receipt references.
Section 80D: riders can be deducted too
If your term plan includes a critical-illness rider or another health-related rider, the premium attributable to that rider may qualify under Section 80D — the same section that covers health insurance — rather than 80C. That means a well-structured term plan can, in the right circumstances, touch two deduction buckets at once. As with 80C, this applies under the old regime. Your insurer's premium certificate will usually split the base premium from the rider premium, which is what you'll need at filing.
Section 10(10D): the benefit that actually matters
This is the big one. Under Section 10(10D), the amount your nominee receives on your death is fully exempt from income tax — and, crucially, this exemption applies regardless of which tax regime you or your nominee are on.
So if you hold a ₹1 crore term plan and the worst happens, your family receives the full ₹1 crore. It isn't added to their taxable income for the year. For pure term insurance, this is unconditional in practice, because term plans have no maturity value — the entire benefit is a death benefit, which is exactly what 10(10D) is designed to protect.
Renumbered: under the Income Tax Act, 2025, the 10(10D) exemption now sits under Section 11, read with Schedule II. The exemption itself is unchanged.
A note on "return of premium" (TROP) plans
Pure term insurance pays only on death, so the tax-free treatment is clean. But some plans — term with return of premium (TROP) — pay your premiums back if you survive the term. Because those plans cost more, the annual premium can exceed 10% of the sum assured, and in that case the maturity (survival) payout can become taxable, even though the death benefit stays exempt. If you're comparing pure term against TROP, factor this in — and this is exactly the kind of nuance worth checking with a CA before you buy.
Old regime vs new regime: what actually changes
For FY 2026-27, the new tax regime remains the default. It offers lower slab rates and a rebate that makes income up to ₹12 lakh effectively tax-free, but it removes deductions like 80C and 80D. Budget 2026 kept this structure unchanged for FY 2026-27.
| Old regime | New regime (default) | |
|---|---|---|
| 80C deduction on premiums | ✅ Available | ❌ Not available |
| 80D deduction on riders | ✅ Available | ❌ Not available |
| 10(10D) tax-free death benefit | ✅ Available | ✅ Available |
| Slab rates | Higher | Lower |
The takeaway is simple: moving to the new regime costs you the premium deductions, but it never touches the tax-free payout. So the core reason to own term insurance — a large, tax-free safety net for your family — holds up perfectly under either regime.
The honest advisor's point: never size your term cover around ₹1.5 lakh of 80C. Size it around what your family would actually need to replace your income, clear debts and keep their life stable — typically 10–15× your annual income as a starting point. Let the tax benefit be the bonus, not the brief.
The 2025 GST change — a separate saving
From 22 September 2025, the GST on individual life insurance premiums — including term plans — was cut from 18% to 0%, following the 56th GST Council meeting. This is a government-notified change.
In rupees: a ₹15,000 annual term premium that used to cost ₹17,700 with 18% GST now costs ₹15,000. You keep the ₹2,700, whatever tax regime you're on.
Note that this applies to individual policies; group/employer life cover still attracts 18% GST. And it's a reduction in your premium bill — it is not a Section 80C deduction and doesn't change your 80C limit.
A worked example
Meera (32) buys a ₹1 crore pure term plan with an annual premium of ₹14,000, plus a critical-illness rider costing ₹6,000. She files under the old regime.
- Section 80C: ₹14,000 base premium is deductible (within her ₹1.5 lakh 80C limit, alongside her PPF and EPF).
- Section 80D: the ₹6,000 rider premium may be deducted under 80D (within her health-insurance limit).
- Section 10(10D): if the worst happens during the term, her nominee receives the full ₹1 crore, tax-free.
- GST: because she bought after 22 September 2025, she paid no GST on the premium.
If Meera later switches to the new regime, she loses the 80C and 80D deductions — but the ₹1 crore payout stays tax-free.
Common misconceptions
"The death benefit is taxable." No. Under Section 10(10D), the death benefit from a term plan is fully tax-free for your nominee, in any tax regime.
"Term insurance is only worth it for the 80C deduction." The deduction is minor compared with the point of the product: replacing your income for your family. If you're on the new regime and get no deduction at all, a term plan is still one of the most important things you can own.
"80C gives me ₹1.5 lakh back." It's a deduction, not a refund. It reduces your taxable income by up to ₹1.5 lakh; the tax you actually save is that amount times your slab rate.
"Riders don't get any tax benefit." Health-related riders such as critical illness may qualify under Section 80D, separately from the base premium's 80C benefit.
How the tax benefits are claimed
While you're paying premiums (the deductions):
- Pay premiums non-cash and keep the receipts.
- Collect the insurer's premium certificate, which splits base premium (80C) from rider premium (80D).
- Opt for the old regime at filing if the deductions make it worthwhile for you.
- Enter the amounts in the relevant deduction schedules of your ITR.
When your family claims the payout (the tax-free benefit):
This is where the tax exemption becomes real money — and where a claim can either go smoothly or become a painful, paperwork-heavy ordeal at the worst possible time. Your nominee will need to intimate the insurer, submit the death certificate and policy documents, and complete the claim forms correctly. The payout is tax-free by law; whether it's effortless depends entirely on how the claim is handled.
Where MITRA fits in
We're an advisory, so we help on both sides of the policy.
Before you buy, a MITRA advisor helps you size your term cover to your family's real needs, choose sensible riders, and — if you're on the old regime — understand how 80C, 80D and the 0% GST apply to you. No pressure, no scare tactics, no product we've been told to push.
After you buy — and this is the part that defines us — a dedicated claim expert stands with your family when it counts. A term insurance claim is filed at the hardest moment a family will face, and the money is only tax-free if the claim is actually paid. Our claim experts help your nominee prepare and verify documents, coordinate with the insurer, and see the claim through to settlement, in plain language, for free. A tax-free ₹1 crore on paper means nothing until it reaches your family — making sure it does is our whole reason for existing.
Explore term insurance with MITRA, or see how our claims support works.
This article is for general education and does not constitute tax or investment advice. Limits, section numbers and rules are based on the Income Tax Act (as amended, including the Income Tax Act, 2025) and Government of India notifications current for FY 2026-27; tax law can change. Please consult a qualified Chartered Accountant for advice specific to your situation.
Related reading
- Term insurance with MITRA
- Life insurance — the complete guide
- How a life insurance claim works
- Tax benefits of health insurance (Section 80D)
Sources: Income Tax Act (1961 & 2025), Sections 80C / 123, 80D / 126, and 10(10D) / Section 11 (Schedule II); Central Board of Direct Taxes; Ministry of Finance, Department of Financial Services notification on GST exemption for individual life & health insurance (effective 22 September 2025); Union Budget 2025 & 2026.
Frequently asked questions
Is the term insurance death benefit taxable?
No. The death benefit paid to your nominee is fully tax-free under Section 10(10D) of the Income Tax Act, and this exemption applies under both the old and new tax regimes.
Does term insurance qualify for the Section 80C deduction?
Yes. Premiums paid on a term insurance policy are deductible under Section 80C up to ₹1.5 lakh per year, but only under the old tax regime. For policies issued after 1 April 2012, the premium must be within 10% of the sum assured for the full deduction.
Are term insurance tax benefits available under the new tax regime?
Partly. The 80C deduction on premiums and 80D deduction on riders are not available under the new regime. However, the tax-free death benefit under Section 10(10D) applies in both regimes.
Are term insurance riders tax-deductible?
Health-related riders, such as a critical-illness rider, may qualify for a deduction under Section 80D, separately from the base premium's 80C benefit. This applies under the old regime.
Did the section numbers change?
Yes. Under the Income Tax Act, 2025 (in force from 1 April 2026), Section 80C is now Section 123, Section 80D is Section 126, and the 10(10D) exemption falls under Section 11 (Schedule II). The benefits and limits are unchanged.
Is term insurance cheaper now because of GST?
For individual policies, yes. From 22 September 2025, GST on individual life insurance premiums (including term) is 0%, down from 18%. This lowers your premium directly and is separate from the income-tax deductions.
Is the maturity amount of a return-of-premium (TROP) plan tax-free?
Not always. Because TROP plans have higher premiums, the premium can exceed 10% of the sum assured, in which case the survival/maturity payout may be taxable. The death benefit remains tax-free. Check the specifics with a tax professional.
