Term Insurance Tax Benefits

Term insurance, being the simplest type of life insurance policy, provides life cover to an individual for a certain period in return of regular payment of a specific premium. In layman terms, if the life insured dies during the policy period, the policy nominee will receive a death benefit as defined in the policy inclusion terms.

A term insurance plan is highly affordable, and you can also receive additional benefits by including add-ons/riders in it. You should also know that pure term insurance has no cash value, i.e., it does not provide any survival benefit. However, you can get many other benefits, like term insurance tax benefits, by investing in a suitable plan.

Also Read: What is term insurance.

There is not just one but several term insurance tax benefits that you can avail when you buy a term plan. These benefits are currently available only under the old tax regime and can help you save money on the tax outgo while ensuring your loved one’s financial future.

Let us take an in-depth look at the term insurance tax benefits to answer various related questions.

Various term insurance riders are offered by insurance companies to provide supplementary coverage. However, their benefits are not limited to strengthening a term insurance policy beyond its core features.

Depending on the rider you select with a term plan and related conditions, you can avail additional term insurance tax benefits but only if you have opted for the old tax regime. Here are a few ways in which term plan riders can make you avail additional term life insurance tax benefits:

• Critical Illness rider, when added to your term plan, makes you eligible for tax deductions under Section 80D.
• Riders like Return of Premium, when chosen at the time of buying a term plan, increase its premium, thereby enabling you to save more money under Section 80C. You can check how the premium varies with the inclusion of riders using an online calculator.

You can avail a tax deduction under Section 80D, in addition to 80C deductions, against the premium paid for your term plan if you include a health-related rider, such as personal accident cover. However, there are specific exclusions, such as:

• Employer-Paid Group Health Insurance: If your employer pays the premium for a group health insurance policy, you cannot claim a deduction under Section 80D. The deduction is permissible only when you pay the premium.
• Premium Paid in Cash: You cannot avail tax deduction under Section 80D against premiums paid in cash. You must pay the premiums either online or via cheques/demand drafts.
• Premium Not Paid in the Financial Year: You can avail 80D deductions in a financial year only if you paid the premiums in the same year. If no premium is paid in one financial year, no deduction is allowed for that year.
• Premium Paid for Ineligible Relatives: You can Section 80D deductions against premiums paid only policies that cover yourself, along with your spouse, and dependent children and parents. Hence, no deductions allowed for premiums paid for siblings, grandparents, uncles, aunts, or other relatives.

As already mentioned earlier term insurance tax benefits extend to specific riders and the critical illness rider offers tax benefits under Section 80D of the Income Tax Act (under the old tax regime). However, the tax benefits under Section 80D are not limited to only this. This section of the Income Tax Act offers tax benefits on the premium paid for a range of policies such as mediclaim, cancer insurance plans as well as various health insurance plans such as Axis Max Life Secure Earnings and Wellness Advantage (SEWA) plan.

However, it should be kept in mind that the tax benefit under Section 80D is limited to the actual payment made as well as limits that are specified under the Income Tax Act. In this the case not only for standalone health plans but also for term insurance plan tax benefits that have riders offering specified benefits be it cancer cover or financial protection against a list of critical illnesses.

Section 10(10D) offers tax insurance tax exemption against policy proceeds or sum assured received, including bonuses (if any). However, the following conditions apply here:

• For policies issued on or after 1st April 2012, the yearly premium paid should not go beyond 10% of the actual sum assured.
• For policies issued between 1st April 2003 and 31st March 2012, the yearly premium should not exceed 20% of the actual sum assured.

Claiming tax benefits on term insurance can help reduce your tax burden, but common mistakes can lead to missing out. In this regard it is important to remember that the tax deduction benefits are only applicable if one has opted for the old tax regime. Here are some key mistakes to avoid:

1. Not claiming the taxes paid on premiums:Term plan premiums in India are subject to GST at applicable rates and these can be claimed as tax deductions to reduce overall tax outgo.
2. Missing Documentation:Always maintain records such as old premium receipts and certificates to ensure that you are able to claim the correct tax deduction amount at the time of tax filing.
3. Not Including Riders:Some riders and add-ons like critical illness and disability rider can help you avail additional tax savings under Section 80D. This is over and above the Section 80C benefit offered on the premium paid for the base plan.


However, do keep in mind that these benefits are not available to policyholders who opt for the new tax regime.

A term insurance premium calculator can help make the calculation of your insurance premiums a lot simpler. You can enter the necessary information to find a suitable cover at a cost that doesn't exceed your budget. To do this, follow the steps below:

Step 1: Personal Details
Fill in your full name and date of birth (DD/MM/YYYY) first. Next, indicate if you are an NRI, choose your gender and answer the questions honestly about your smoking history, since these are all important factors that will affect the premium provided by the term insurance premium calculator.

Step 2: Contact Details
Then enter your mobile phone number to receive the OTP for verification. You should also enter your email address to receive policy-related communication and updates.

Step 3: Policy Details
After verification, click the desired term of the policy and enter the desired sum assured in Rs. After that, mention your annual income to assess eligibility and receive suitable term insurance plan suggestions. Lastly, choose your preferred payment method. Using this information, the term plan premium calculator calculates your term premium.

Step 4: View Results
Calculate your premium by clicking ‘Calculate Premium' to get a personalised premium quote. The insurance calculator for term insurance quickly examines the information provided to provide an estimate of the premium based on your individual profile and coverage requirements.

There are several misconceptions about the function and importance of term life insurance. Here are some of the myths that must be busted to ensure financial coverage is comprehensive:

You need to select the right term insurance plan to meet your financial requirements and maximise tax benefits. Check out the following factors when selecting the right term insurance plan:

• Flexible Payment: This term plan offers flexible payment options and a premium payment term, and allows you a tax deduction of up to ₹1.5 lakhs per annum.
• Sum Assured: This term plan should fulfil all your financial obligations and provide the assured benefits.
• Tenure: This term plan offers a long policy term to provide you with maximum life cover and adequate financial coverage to your nominees.
• Additional Riders: This term plan allows you to enhance your coverage by adding necessary riders in case of certain illnesses.

Here is a comparative analysis of the working of term life insurance tax benefits under the old and new tax regimes, according to the Income Tax Act, 1961:

It is essential to understand the term plan tax benefit differentiations to choose between the new and old tax regimes to avail the highest deductions.

Claiming term insurance tax benefits varies from salaried and self-employed individuals. Knowing the right procedure, the forms and documents needed will make sure that you can properly claim deductions under Section 80C (Section 123 under IT Act 2025) and 80D (now Section 126) without making mistakes or delays.

Salaried Individuals

• Submit Form: Salaried employees normally make claims through Form 12BB (now Form 124) by filling and submitting it at the start or in the middle of the financial year. It is a form that assists in declaring intended investments, such as term insurance premiums.
• Claim Premiums: The premiums paid on your term insurance policy should be declared under Section 80C (now Section 123). Additionally, premiums that you pay for eligible health-related riders (such as critical illness riders) can be claimed under Section 80D (now Section 126).
• Maintain Records: The receipts for all premium payments and policy certificates should be securely maintained, which may be demanded by your employer as evidence before the deduction can be made in the payroll calculations.
• Employer Review: Once submitted, your employer will verify the details and take into consideration the deductions that can be made and then calculate the taxable income and TDS.
• Verify Accuracy: Always ensure that the figures mentioned in Form 16 (now Form 130) match your actual premium payments. Any mismatch can lead to discrepancies or notices when filing your income tax return.

Self-Employed Individuals

• File ITR: Self-employed persons are entitled to claim their term insurance tax benefits directly upon filing their Income Tax Returns.
• Claim 80C: The premiums paid to your term insurance policy are deductible under Section 80C (now Section 123, subject to the specified limits.
• Claim 80D: All the premiums paid on eligible health-related riders can be claimed separately under Section 80D (now Section 126.
• Check Limits: The maximum deduction limits under Sections 80C and 80D are only applicable when your total eligible premiums have reached the specified caps.
• Actual Payment: You are allowed to make deductions based on the actual amount of premiums paid during the financial year rather than the policy value or sum assured.
• Maintain Proofs: Keep digital or physical copies of premium receipts, payment confirmations, and policy documents as supporting evidence in case of tax scrutiny or verification.
• Payment Basis: Note that the method of payment does not affect your eligibility. Deduction can be made depending on the amount of premium paid during the financial year, irrespective of the payment mode.

The Income Tax Act, 1961, outlines specific eligibility criteria for claiming tax benefits on term insurance. Individuals willing to claim these benefits must meet the following conditions:

• Individual looking to claim tax benefit against term insurance premiums in India must be Indian citizens or a valid Hindu Undivided Family (HUF).
• Under section 80C of the Income Tax Act, 1961, senior citizens (aged 60 or above) whose income falls within taxable brackets can also claim tax deductions against premiums paid for term life insurance in the old tax regime.
• Any Indian citizen willing to claim deductions under the provisions of the Income Tax Act, 1961, must have a term insurance policy registered in their name or in the name of their spouse or children, where the claimant (the same individual) has paid the premiums.
• Any Indian resident whose income is within the tax brackets qualifies for term insurance tax benefits.

The following is the list of aspects that are not covered under Section 126 of the Income Tax Act, 2025:

• Premium payments made in cash
• Payments for non-dependant family members, such as siblings, working children, or other relatives
• Premiums paid by your employer for the group health insurance

Previously, term insurance policies were charged 18% GST for individual policies and 18% group premiums, effectively raising the cost for the policyholder annually. For example, an annual premium of Rs 20,000 increased to Rs 23,600 after including GST. This extra tax amount significantly increased the total cost of the insurance coverage over a long-term policy.

Many policyholders also ask: Is GST on term insurance eligible for 80C deduction? In general, the GST charged on eligible term insurance premiums will be reflected in the premium amount eligible for deduction under Section 80C of the Income Tax Act, 1961, as per applicable tax laws and the deduction limits.

Here are some illustrations that help you understand the tax benefits under different sections of the Income Tax Act applicable to a term insurance policy: