Insurance in India serves a dual purpose: it protects families from financial shocks and, when chosen wisely, enhances overall tax efficiency. With frequent regulatory changes around deductions, premium thresholds, and TDS rules, understanding the tax framework is essential for both everyday policyholders and high-income investors.
This guide breaks down the latest tax rules on life and health insurance for FY 2025–26 (AY 2026–27), helping you choose between the old and new regimes with clarity and confidence.
Note: Deductions under Chapter VI-A (80C/80D/80CCC) are not available in the new tax regime (115BAC). Death benefits continue to remain tax-free, subject to existing conditions.
Health Insurance: Section 80D (Old Regime)
Section 80D offers meaningful tax relief for health insurance premiums, provided payments are made through non-cash modes (except preventive check-ups).
Who can claim?
Individuals and HUFs paying premiums for:
- Self, spouse, dependent children, and parents
- Parents, whether dependent or not
- CGHS and other notified scheme contributions
- Medical expenses for senior citizens without insurance
80D Deduction Limits
- Self/Spouse/Children: Up to ₹25,000 (includes preventive check-up up to ₹5,000)
- Parents (<60): Up to ₹25,000
- Parents (≥60): Up to ₹50,000
- Taxpayer ≥60: Self-family limit becomes ₹50,000
- Senior citizens without insurance: Expenses up to ₹50,000
- Multi-year policies: Deduct proportionately across years
Example
If you (35) pay:
- ₹22,000 for your family
- ₹46,000 for your 65-year-old mother
- ₹3,000 for a preventive check-up
Your total deduction becomes ₹68,000, within Section 80D limits.
Documentation You Need
- Premium receipts mentioning the payer and insured persons
- Non-cash payment proof
- 80D certificate
- Updated PAN details
Life Insurance Premiums: Sections 80C & 80CCC (Old Regime)
Life insurance premiums qualify for deductions, but they share the same combined ceiling.
Section 80C – Life Insurance Premium
- Combined limit: ₹1.5 lakh per FY
- Eligibility: Premiums for self, spouse, children; HUFs for members
- Premium-to-sum-assured rule:
- For policies issued ≥1 Apr 2012 → premium ≤10% of sum assured
- For persons with disabilities/diseases → ≤15%
- For policies issued ≤31 Mar 2012 → ≤20%
- For policies issued ≥1 Apr 2012 → premium ≤10% of sum assured
Section 80CCC – Pension/Annuity Plans
- Deduction up to the same ₹1.5 lakh shared ceiling
- Applies to contributions in insurer-issued pension plans
- Best used when you specifically want structured retirement income
Tax on Life Insurance Payouts: Section 10(10D)
Section 10(10D) is one of the most valuable provisions for policyholders.
Tax-Free Amounts
- All death benefits
- Maturity/surrender benefits only if conditions are met
Exemption Conditions
- Premium ≤10% (or 15% for specified persons) of the sum assured for policies issued after 1 Apr 2012
- Older policies follow the 20% rule
- Keyman policy proceeds are taxable
High-Premium Rules You Must Track
ULIPs (issued ≥1 Feb 2021)
- If aggregate ULIP premium >₹2.5 lakh in any year → maturity proceeds become taxable
- Gains are taxed as capital gains
- Death benefit remains tax-free
Traditional (non-ULIP) Policies (issued ≥1 Apr 2023)
- If aggregate premiums >₹5 lakh in any year → maturity proceeds taxable
- Death benefit remains exempt
- Policies issued before 1 Apr 2023 are not counted
Practical Checklist Before Buying Multiple Policies
- Track issue dates, premiums, and sum assured
- Maintain separate buckets for ULIPs and non-ULIPs
- Keep premiums ≤10% (or 15%) of sum assured to secure 80C and 10(10D) benefits
TDS on Non-Exempt Payouts: Section 194DA
When 10(10D) exemption does not apply and the payout ≥₹1,00,000:
- TDS rate: 2% (from 1 Oct 2024) on the income portion
- Without PAN: TDS at 20%
- You must report the income in your ITR and claim TDS credit from AIS/26AS
Old vs New Regime: What Changes for Insurance?
Under the new tax regime, most deductions, including 80C, 80D, and 80CCC, are discontinued.
When New Regime Makes Sense
- You have minimal deductions
- Lower tax slabs benefit you more than itemised deductions
When the Old Regime Is Better
- You maximise 80C via EPF/PPF/ELSS
- You claim substantial 80D deductions for family and senior parents
Compliance-Safe Planning Ideas
A few smart adjustments can help you stay compliant while optimising your taxes.
- Keep life cover premiums within 10% or 15% of the sum assured
- Track ULIP (₹2.5 lakh) and non-ULIP (₹5 lakh) premium thresholds separately
- For parents ≥60, claim up to ₹50,000 under 80D (premiums or medical expenses)
- For multi-year health policies, spread the deduction proportionately
- Maintain updated PAN details and preserve all receipts/certificates
Caselets to Bring It Together
Caselet A Young Family, Old Regime
Ravi (32) pays for family and parent health cover plus a traditional policy premium.
- 80D deduction: ₹60,000
- 80C deduction: ₹48,000 (within limits)
- 10(10D): Eligible for exemption on maturity
This keeps his insurance both compliant and tax-efficient.
Caselet B HNI With Multiple ULIPs
Asha (45) holds ULIPs totalling ₹3.2 lakh annual premium.
- Breaches ₹2.5 lakh ULIP limit
- Maturity proceeds become taxable
- Death benefit remains exempt
Caselet C Senior Citizen Without Health Cover
Mahesh (67) incurs medical expenses of ₹38,000, paid by his son.
- He can claim up to ₹50,000 under 80D (old regime)
- Medical expenses count in place of the premium
FAQs
Q1. Are life insurance death benefits always tax-free?
Yes. They remain exempt under 10(10D) regardless of premium size for ULIPs or non-ULIPs.
Q2. Can I claim 80D for parents who are not dependent?
Yes. Dependency does not matter.
Q3. Do the ₹5 lakh limits apply to old policies?
No. Only policies issued on or after 1 Apr 2023 count.
Q4. Is a preventive health check-up allowed above 80D limits?
No. It is included within the existing caps.
Q5. Do 80C/80D apply in the new tax regime?
No, most Chapter VI-A deductions are not available under 115BAC.
Conclusion
Insurance strengthens financial resilience, but understanding its tax framework ensures you don’t miss out on important savings. Use Section 80D for medical protection, leverage 80C/80CCC when opting for the old regime, and follow the 10(10D) rules carefully to avoid taxable surprises, especially with high-premium ULIPs and traditional plans.
As tax laws evolve, staying compliant while maximising benefits helps you protect your family and optimise your long-term strategy.
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