Term Insurance Tax Benefits - Section 80C, 80D & 10D

Term insurance offers financial security for your family along with significant tax savings. By choosing a term insurance policy, you not only protect your loved ones from financial uncertainties but also reduce your tax burden. Under the Income Tax Act, term insurance comes under 80C, allowing you to claim deductions on the premiums you pay annually. 

Additionally, certain premiums qualify under Section 80D, especially when specific riders are added. Even the payout benefits received by nominees under Section 10(10D) are exempt from taxation. Understanding these tax advantages helps policyholders maximise both financial protection and savings effectively.

When you buy a term insurance policy, you become eligible for multiple tax benefits under the Income Tax Act, 1961. These benefits span across Sections 80C, 80D, and 10(10D), helping you save on taxes while ensuring financial protection.

The Income Tax Act, 1961 outlines specific criteria that individuals must meet to claim tax benefits on term insurance premiums. To be eligible for these deductions and exemptions, the following conditions apply: 

• Any Indian resident individual or Hindu Undivided Family (HUF) can claim tax benefits on premiums paid for term insurance policies.

• The individual must fall within a taxable income slab during the financial year in which the deduction is claimed.

• Under Section 80C, senior citizens aged 60 years or above are also eligible for tax deductions if they have taxable income.

• The term insurance policy must be in the name of the taxpayer, their spouse, or dependent children to qualify for deductions under Section 80C or 80D.

• For Section 80D claims, riders such as critical illness or health-based add-ons must be included in the term plan, and premiums should be paid through non-cash modes.

Fulfilling these conditions ensures that you can legally claim and maximise your term insurance tax benefits under the relevant sections of the Income Tax Act. 

Term insurance under 80C makes it a tax-efficient way to secure your family’s future. Premiums paid for term policies—typically up to ₹1.5 Lakhs per financial year—can be claimed as deductions under Section 80C. Both individuals and Hindu Undivided Families (HUFs) are eligible.

Key Aspects of Term Insurance u/S80C

• Maximum Deduction Limit (₹1.5 Lakhs): The total deduction for life insurance and other instruments—like PPF, ELSS, and FD—is capped at ₹1.5 Lakhs per year.
• Premium-to-Sum Assured Ratio: For policies issued on or after 1st April 2012, annual premium must not exceed 10% of the sum assured. Policies issued before that date allow up to 20% of sum assured. 
• Minimum Holding Period: The policy should remain in force for at least two years. If surrendered earlier, deduction claimed earlier is treated as income in the year of surrender.
• GST on Term Insurance Premium: GST charged on term insurance premium is not deductible under Section 80C. Only the base premium qualifies for deduction.

Importance of 80C Tax Benefits for Term Insurance

Term insurance under 80C helps in reducing your taxable income while providing financial cover for your dependents. Since this tax benefit is available in the old tax regime, individuals who pay GST on term insurance premium and manage their finances well can significantly reduce their taxable liability. Ensure your annual premium is compliant with the sum-assured ratio, and hold the policy for the minimum term to maximise benefits. 

Example

Rohit, a 30-year-old IT professional, earns ₹5 Lakhs per annum. He purchases a term insurance policy with an annual premium of ₹20,000. The GST on term insurance premium is ₹3,600 (18% of premium).

Tax Benefit Calculation:

• Rohit can claim a deduction of ₹20,000 under Section 80C (GST excluded). 
• His taxable income reduces from ₹5 Lakhs to ₹4.8 Lakhs, lowering his overall tax liability. 

Outcome: By leveraging term insurance under 80C, Rohit saves tax while simultaneously protecting his family’s future financially. 

Term insurance under 80D delivers additional tax relief if your base plan includes health-related riders. This section covers premiums paid toward riders like Critical Illness, Surgical Care, or Hospitalisation add‑ons—making them eligible for deductions separate from Section 80C.

Key Aspects of Term Insurance u/S80D

• Who qualifies: Term insurance comes under 80D only when health riders are opted for, allowing policyholders to deduct these premiums separately. Premiums for the base term plan still fall under 80C.
• Deduction limits: Individuals and HUFs below 60 years can claim up to ₹25,000 per annum for rider premiums. For senior citizens (aged 60+), the limit increases to ₹50,000.
• Combined deduction ceiling: Rider-related premiums qualify under Section 80D in addition to the ₹1.5 Lakhs deduction under Section 80C for base premiums, allowing tax-efficient optimisation. 
• Preventive check‑ups: Section 80D permits a further deduction of up to ₹5,000 per year for preventive health check-ups within the overall 80D limit, provided premiums are paid via non‑cash modes. Cash payment is accepted only for check‑ups. 

Importance of 80D Tax Benefits for Term Insurance

Section 80D plays a valuable role in term insurance by allowing deductions on premiums paid for health-related riders like Critical Illness or Hospital Care. These riders not only enhance your overall coverage but also offer separate tax-saving opportunities beyond the base plan. By including relevant riders, you can optimise both protection and deductions—making your term insurance plan more comprehensive without increasing your tax burden unnecessarily.  

GST on Term Insurance Premiums

Term insurance premiums include a Goods and Services Tax (GST), currently set at 18%. When you pay GST on term insurance premium for health-related riders (like Critical Illness or Hospital Care), this amount can also be included within the deduction limits under Section 80D. Essentially, both the rider premiums and the GST component qualify, helping you maximise your available tax deductions.

Note: GST paid on the base premium (covered under 80C) is not deductible. Hence, clearly separating rider premiums from the base policy payments can help simplify your tax planning and enhance savings. 

Example

Neha, a 35-year-old bank manager, earns ₹7 Lakhs per annum. She has a term plan and adds a Critical Illness Rider costing ₹15,000 per year, plus ₹2,700 GST. 

Tax Benefit Calculation:

• The rider premium of ₹15,000 and its GST (₹2,700) are deductible under Section 80D. 
• Neha can claim ₹17,700 as a deduction, reducing her taxable income from ₹7 Lakhs to ₹6,82,300.
• This deduction is in addition to her ₹1.5 Lakhs deduction limit under 80C.

Outcome: Term insurance comes under 80D due to rider inclusion, allowing Neha to significantly boost her overall tax savings. 

Section 10(10D) of the Income Tax Act offers full tax exemption on the benefits received under a term insurance policy—ensuring financial relief when it matters most. 

Key Aspects of Term Insurance u/S10(10D)

• Tax-Free Death Benefit: Any sum paid to beneficiaries on the insured’s demise is entirely exempt from income tax, irrespective of claim amount.
• Maturity or Surrender Benefits: Proceeds from policy maturity or surrender are also exempt, provided the policy has been in force for at least two years and meets premium-to-sum-assured criteria. 

Conditions to Qualify for Tax Exemption

• For policies issued on or after 1st April, 2012, the annual premium must not exceed 10% of the sum assured; for policies between April 2003–March 2012, limit was 20%.
• If the policy has a disability or specific illness rider (as per Section 80DDB/80U), a higher premium limit of 15% applies for purchase dates after April 1st, 2013. 

Note: A Finance Act amendment 1st April, 2023 states that non-ULIP policies issued on or after that date, with annual premium exceeding ₹5 Lakhs, are not eligible for exemption—unless each policy’s premium stays below the ₹5 Lakh cap. 

Why Section 10(10D) Matters in Term Insurance

As long as the relevant conditions are met, you can enjoy fully tax-free payouts on the death benefit or maturity proceeds. Planning and compliance thus enable you to benefit from term insurance not just as a protective tool but also as a tax-efficient vehicle—especially useful when combining it with term insurance under 80C or 80D for maximum impact. 

Example

Amit, aged 40, earns ₹8 Lakhs annually. He buys a term insurance policy with a sum assured of ₹50 Lakhs, paying an annual premium of ₹15,000. Unfortunately, Amit passes away five years later, and his nominee (his wife) receives ₹50 Lakhs as a death benefit.

Tax Benefit:

• Under Section 10(10D), Amit’s wife receives the entire ₹50 Lakhs tax-free. 
• The amount is entirely exempt, irrespective of the income bracket or premium amount (as Amit’s annual premium was less than 10% of the sum assured). 

Outcome: Amit’s nominee benefits fully from the tax exemption, ensuring the family receives financial support without additional tax burden.

When a term insurance claim is made, the beneficiary—usually a spouse, child, or parent—receives the policy payout. Understanding the tax implications on this payout is crucial for effective financial planning. Fortunately, Indian tax laws provide significant relief in this area. 

Death Benefit Is Fully Tax-Exempt Under Section 10(10D)

If the policyholder passes away during the policy term, the nominee receives the sum assured as a death benefit. This amount is completely exempt from income tax under Section 10(10D) of the Income Tax Act, 1961—provided the policy meets certain conditions:

• The annual premium does not exceed 10% of the sum assured (for policies issued after April 1, 2012). 

• The policy is not classified as a high-premium non-ULIP policy (over ₹5 Lakhs annually, post April 1, 2023). 

• The payout is made to an individual, not to a corporate entity or partnership firm. 

What If the Policy Doesn’t Meet Section 10(10D) Criteria

In rare cases where the term insurance policy violates the conditions (e.g., excessive premium-to-sum assured ratio), the death benefit may become taxable. In such cases:

• The payout is treated as ‘Income from Other Sources’ in the hands of the beneficiary.

• Tax is calculated based on the applicable income slab of the nominee.

However, such scenarios are uncommon in traditional term insurance plans, which are typically structured to remain within the exemption limits. 

No Need to File Special Returns

There’s no requirement for beneficiaries to file a separate return for the insurance payout. The amount doesn’t need to be disclosed as taxable income in the ITR (unless the Section 10(10D) exemption doesn’t apply, which is rare).

To sum up, For most policyholders and their families, the term insurance death benefit is 100% tax-free. This makes it one of the most reliable financial tools for legacy planning, with zero tax liability for the nominee—assuming the policy was structured within the law.

Term insurance is more than just financial protection—it’s a smart tax-saving strategy under the old tax regime. With benefits available under Sections 80C, 80D, and 10(10D), policyholders can save taxes both during the premium-paying phase and at the claim stage. Structured right, it’s a win-win for you and your family.