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Is Life Insurance Premium Tax Deductible: A Comprehensive Guide

See how life insurance premiums qualify for tax deductions and exemptions under the Income Tax Act, 2025 (Tax Year 2026-27)

Written by : Knowledge Centre Team

2026-08-07

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6 minutes read

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While life insurance serves as a protective shield, understanding the tax implications on the premiums could be confusing. The good news is that life insurance offers tax benefits. However, the government has laid down specific conditions and exceptions that determine whether, and to what extent, your life insurance premiums and policy benefits qualify for tax exemptions. 

In this blog, we will break down the complexities surrounding the taxability of life insurance premiums, helping you make an informed decision. But before that, let us quickly brush up on the concept of life insurance.

Key Takeaways

  • Life insurance premiums qualify for a deduction under Section 123, up to ₹1.5 lakh per tax year, under the old tax regime

  • Maturity and death benefits are usually exempt under Schedule II, if premium-to-sum-assured limits are met

  • Health-related riders, such as critical illness, are deducted separately under Section 126, up to ₹25,000- ₹50,000

  • Section 80C is now Section 123, and Section 10(10D) sits under Schedule II, as per the Income Tax Act, 2025

  • All these deductions and exemptions apply only if you choose the old tax regime, not the new one

What is Life Insurance?

Life insurance is a powerful financial tool that acts as a safety net in times of difficulty. It offers a protective layer over the well-being of your loved ones. In simple words, life insurance is a contract in which the policyholder pays regular amounts of money, known as "premiums," to an insurance company. In return, the insurance company provides a lump-sum payment, called the "death benefit," to designated beneficiaries upon the policyholder's death.

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Tax Deduction on Premiums of Life Insurance Policies

The premiums paid toward a life insurance policy are tax deductible. This means that the money you pay as premiums for the policy can be subtracted from your income when calculating your income tax liability. It allows you to harness the dual benefits of financial protection and tax efficiency.

This life insurance premium tax deduction is available to individual taxpayers and Hindu Undivided Families (HUFs), and can be claimed on premiums paid for a policy held by yourself, your spouse, or your children. It is worth noting that this deduction can only be claimed if you continue with the old tax regime. If you have opted for the new tax regime, premiums paid towards life insurance are not eligible for any deduction from your taxable income.

Also Read: ULIP Tax Benefits

Tax Benefits Offered Under Life Insurance

In India, the Income-tax Act, 2025, includes specific sections that enable policyholders to avail tax benefits associated with their life insurance policies. To save the most with these benefits, let us take a look at the various tax deductions and exemptions offered.

  • Section 123 Deductions (Formerly Section 80C): Under Section 123 of the Income Tax Act, 2025 (earlier called Section 80C of the Income Tax Act, 1961), you can claim a deduction on the premiums, whether paid for yourself, your spouse, or your children. The maximum deduction allowed under this section, read with Schedule XV, is up to ₹1.5 lakhs per tax year, provided you continue with the old tax regime.
  • Schedule II Exemptions (Formerly Section 10(10D)): Maturity proceeds refer to the amount paid to an investor upon completion of the policy tenure. Under Schedule II (Table S.No. 2) of the Income Tax Act, 2025, earlier covered under Section 10(10D) of the Income Tax Act, 1961, the maturity proceeds that you receive from buying a life insurance policy are exempted. This is subject to the premium paid in any year not exceeding a specified percentage of the sum assured, depending on when the policy was issued. This exemption ensures that the sum assured you or your nominees receive remains tax-free.

Is Term Life Insurance Premium Also Tax Deductible?

Wondering, “Are life insurance premiums tax deductible?” The answer is yes. Term insurance premiums qualify for the same Section 123 deduction as any other life insurance policy, up to the ₹1.5 lakh combined limit, provided you're on the old tax regime. There's no separate rule for term plans.

Term insurance differs in the payout. Since most term plans offer no maturity benefit, the Schedule II premium-to-sum-assured ratio rarely applies; that condition governs survival or maturity proceeds, not death benefits. The death benefit paid to your nominee remains exempt under Schedule II regardless of this ratio.

Do you know

Did You Know?

The GST exemption on life insurance premiums helped drive a 21% year-on-year rise in private life insurers' sales during October-November 2025
 

Source: IBEF

P4W - Canara HSBC Life Insurance

Conditions and Limits for Claiming Life Insurance Tax Benefits

A few conditions decide whether your premiums and payouts actually qualify for tax deductions and exemptions:

  • The Section 123 deduction is capped at ₹1.5 lakh per tax year and is available only if you continue with the old tax regime

  • For policies issued on or after 1 April 2012, the Schedule II maturity exemption applies only if your annual premium does not exceed 10% of the sum assured

  • For policies issued before 1 April 2012, this threshold was 20% of the sum assured

  • Policies covering a person with a disability or specified illness get a relaxed threshold of 15%

  • For non-ULIP policies issued on or after 1 April 2023, the exemption also requires your aggregate annual premium across such policies to stay within ₹5 lakh (₹2.5 lakh for ULIPs)

  • Keyman insurance policies are not eligible for this exemption

Old vs New Tax Regime: Does This Affect You?

Section 123 deductions on life insurance premiums are available only under the old tax regime. If you've opted for the new tax regime, which is the default regime from Tax Year 2026-27 onwards unless you actively choose otherwise, you cannot claim this deduction, regardless of how much premium you pay.

This doesn't mean life insurance stops making sense financially. The death benefit and eligible maturity proceeds remain exempt under Schedule II irrespective of which regime you choose, since that's an exemption on income received, not a deduction on income spent. It's only the premium deduction under Section 123 that is regime-dependent.

If tax savings on premiums are a meaningful part of why you're buying a policy, it's worth comparing your total tax outcome under both regimes before deciding, since the new regime's lower slab rates may or may not offset the loss of this deduction, depending on your income and other Section 123 investments.

What Are the Tax Benefits on Life Insurance Riders?

Riders are additional coverage or features you can add to your policy at an additional cost. They cover life events that are not included in the standard policy. Thus, adding a rider to your policy will help you to maximise your life insurance benefits.

Adding a rider to your life insurance policy is completely optional and can be added to the base plan for an extra premium. Most riders, such as accidental death benefit or waiver of premium, are treated as part of your life insurance premium and qualify for a deduction under Section 123 within the same ₹1.5 lakhs per annum limit.

However, health-related riders, such as a critical illness rider, hospital cash rider, or surgical care rider, are treated differently. The premium for these is eligible for a separate deduction under Section 126 of the Income Tax Act, 2025 (earlier Section 80D), up to ₹25,000 per year (₹50,000 if you or your parents are senior citizens), in addition to the Section 123 limit. Both deductions are available only under the old tax regime.

The death benefit received by the beneficiary of a life insurance policy, including riders, is generally tax-free under Schedule II of the Income Tax Act, 2025. This means the entire sum assured, including the rider benefits, can be exempt from income tax. Moreover, numerous life insurance policies offer critical illness riders that provide tax-free lump-sum benefits upon diagnosis of a critical illness.

How to Claim Life Insurance Tax Benefits

Claiming your tax benefit in life insurance is a straightforward process once you know which documents and forms are involved. Here is how to go about it:

  1. Choose the old tax regime while filing your return, since the life insurance deduction in income tax under Section 123 (and Section 126, for health-related riders) is available only under this regime

  2. Collect your premium payment receipts or the annual premium certificate issued by your insurer, showing the tax on life insurance premium paid during the year

  3. Check your Form 130 (previously Form 16) (if salaried) or Form 124 (previously Form 12BB) submitted to your employer, to see if these premiums have already been factored into your TDS

  4. Declare the eligible premium amount under Section 123 in your income tax return, along with any health-related rider premium separately under Section 126

  5. If you've received a maturity or death benefit during the year, retain your policy documents to establish the life insurance tax exemption under Schedule II, in case your assessing officer asks for proof of the conditions being met

  6. Keep records for at least 6 years, as income tax assessments can be reopened during this period

Click here to use the life insurance calculator: How much life insurance do I need?

Choose Wisely Now!

The Income Tax Act 2025 helps foster the nation's growth while ensuring the welfare of its citizens. Adhering to tax obligations helps leverage exemptions and deductions to save additional amounts. Provisions like Section 123, when used judiciously, not only enable you to maximise benefits effortlessly but also provide a strategic path to significantly enhance wealth and savings.

So, are life insurance premiums tax-deductible? Yes. Provided you meet the conditions around your tax regime, premium-to-sum-assured ratio, and the specific provision each type of premium falls under. Understanding these details ensures you not only protect your family's future but also make the most of what the tax law allows.

Glossary

  1. Premium: The amount you pay regularly to your insurer to keep your life insurance policy active
  2. Sum Assured: The guaranteed amount your insurer promises to pay on death or maturity of the policy
  3. Death Benefit: The lump sum amount paid to your nominee by the insurer when the policyholder passes away
  4. Rider: An optional add-on to your base life insurance policy that expands coverage for extra premium
  5. Old Tax Regime: The income tax system that still allows deductions like Section 123, unlike the new regime
Glossary book
Uncertain About Insurance?

FAQs

Under Section 123 (formerly 80C), the maximum deduction for life insurance is ₹1.5 lakhs per tax year. For policies issued on or after 1 April 2012, you can claim a deduction on premiums only up to 10% of the sum assured. For policies issued before 1 April 2012, this limit was 20% of the sum assured. If you pay more than the applicable limit as premiums in a single tax year, that extra amount is not eligible for a deduction.

Deductions provided by Section 123 (formerly 80C) are exclusively for individuals and Hindu Undivided Family (HUF) taxpayers who continue with the old tax regime.

The benefits received by policyholders are not just limited to the premium paid during the policy tenure; instead, they extend beyond that. According to Schedule II of the Income Tax Act, 2025 (earlier called Section 10(10D)), the maturity benefits of a life insurance policy are tax-free, provided that the premium paid towards the policy for every year does not exceed 10% of the basic sum assured.

The amount of income tax saved under a life insurance policy varies based on numerous factors, such as the policy type and premiums paid. As per Section 123 of the Income Tax Act 2025 (formerly Section 80C of the Income Tax Act 1961), the policyholder can avail a tax deduction of up to ₹1.5 lakhs per tax year on the premium paid, provided they have opted for the old tax regime.

A life insurance policy offers numerous benefits to the policyholder, but considering the benefits should be one of many reasons to purchase the policy. There are numerous other factors that you must evaluate, including:
 

  • Tenure of the policy

  • Premium payable

  • Inclusions and exclusions of the policy

  • Implications of premium defaul

For policies issued on or after 1 April 2012, both the Section 123 deduction and the Schedule II exemption require your annual premium to stay within 10% of the sum assured. For policies issued before 1 April 2012, this threshold was 20% of the sum assured.

The Section 123 deduction is available only for premiums you personally pay, on a policy for yourself, your spouse, or your children. If an unrelated third party pays the premium on your behalf, you generally cannot claim this deduction, though a parent paying for their child's policy can claim it in their own return.

When applicable, the Section 123 deduction (formerly Section 80C) covers the full premium amount, including any GST charged on it. It's worth noting that since September 2025, the GST Council has removed GST on individual life insurance premiums altogether, so this is largely a non-issue for premiums paid going forward.

ULIP premiums qualify for the same Section 123 deduction as any other policy, but the Schedule II exemption on maturity or surrender proceeds only holds if your aggregate annual premium stays within ₹2.5 lakh; beyond that, the gains are taxed as capital gains instead. Term insurance premiums also qualify for the Section 123 deduction, but since most term plans have no maturity payout, this cap rarely comes into play, and the death benefit stays exempt under Schedule II regardless of premium size.

You'll need your premium payment receipts or the annual premium certificate issued by your insurer, along with your policy document showing the sum assured and issue date. If you're salaried, you should also submit Form 124 (earlier referred to as Form 12BB) to your employer or ensure the premium is reflected in your Form 130 (formerly 16) before filing your return. 

If you surrender a policy issued after 1 April 2012 within two years of purchase, any Section 123 deduction you've already claimed on its premiums gets reversed and added back to your taxable income in the year of surrender. This applies regardless of which tax regime you're under now, since it relates to deductions claimed in earlier years.

Yes, single-premium policies are eligible for the Section 123 deduction (formerly Section 80C), but only in the tax year in which the premium is actually paid, and are subject to the same 10% sum-assured ratio cap that applies to regular premiums. Since there's no recurring payment, this deduction cannot be spread across future years the way it can with annual-premium policies.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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