Are Life Insurance maturity proceeds taxable in 2026?

Choosing the new tax regime does not, by itself, make Life Insurance maturity payout taxable. Tax treatment depends on the policy type, issue date, premium conditions, and whether the payment is a maturity benefit or a death benefit. High premium Unit-Linked Insurance Plan and certain non-ULIP Plans can lose maturity even when the policyholder otherwise qualifies for the new regime.

This distinction matters because the tax regime chosen for salary or other income mainly determines which deductions are available. The exemption test for an Insurance payout is a separate question. Check the policy document, annual premium, sum assured, issue date, and all other relevant policies before filing a return.

Does the new tax regime change the maturity exemption?

Not automatically. Under the old framework, Section 80C could allow an eligible premium deduction, subject to conditions and limits. The new regime generally does not allow that deduction. However, the exemption for qualifying policy proceeds operates separately. From April 1, 2026, the Income Tax Act, 2025, reorganises the statutory references, so any published cross-reference should be cleared by tax and legal reviewers.

In practical terms, “no deduction for the premium” does not mean “the maturity benefit must be taxed”. Equally, choosing the old regime does not guarantee that every maturity benefit is exempt. The policy must satisfy the applicable exemption conditions.

Which details decide whether the payout is taxable?

Use the following order. It prevents the most common mistake: looking only at the tax regime and ignoring the contract details.

1. Identify the payment: A death benefit and a maturity or surrender payment do not follow identical tax rules.

2. Identify the policy category: ULIPs have a separate high premium rule from non-ULIP Policies.

3. Check the issue date: The ₹2.5 lakh ULIP threshold applies to specified policies issued on or after February 1, 2021. The ₹5 lakh rule for specified non-ULIP Policies applies to policies issued on or after April 1, 2023.

4. Check every applicable premium condition, including the premium-to-actual-capital-sum-assured test for the relevant issue period.

5. Aggregate premiums across relevant policies where the law requires aggregation. Do not test each policy in isolation.

6. Confirm the taxable head, permitted premium deduction, TDS credit, and return disclosure with a qualified tax professional.

How are ULIP maturity proceeds treated?

For specified ULIPs issued on or after February 1, 2021, the maturity exemption can be unavailable when the aggregate premium for the relevant ULIPs exceeds ₹2.5 lakh in a year. Where the high premium rule applies, gains may be taxed under the capital gains framework, subject to the law applicable in the year of receipt. Aggregation matters. If a person holds more than one relevant ULIP, the exemption is not determined merely by keeping each individual premium below ₹2.5 lakh.

The statutory selection and aggregation rules must be applied across the relevant policies. A tax reviewer should verify the selected policies and calculation before publication or filing.

ULIPs are linked Insurance products. The policyholder bears the investment risk, fund values can rise or fall, and linked products do not provide liquidity during the first five years except as permitted by applicable rules. Tax treatment should not be presented as a return promise or as the main reason to buy a Life Insurance Policy.

How are non-ULIP maturity proceeds treated?

For specified non-ULIP Life Insurance issued on or after April 1, 2023, the maturity exemption can be unavailable when the aggregate premium payable for the relevant policies exceeds ₹5 lakh in a year. This threshold does not apply to ULIP, which is tested under its separate rule. The law contains rules for choosing which policies may remain within the threshold where several eligible policies exist.

Therefore, a portfolio total above ₹5 lakh does not support the loose statement that every maturity payout will be taxable. The result can depend on the issue dates, premium pattern, and policies selected under the prescribed method. Policies issued before April 1, 2023, are outside this particular ₹5 lakh rule, but they still need to satisfy other applicable conditions. “Grandfathered” should not be used as a shortcut for “automatically exempt”.

What about the premium to sum assured condition?

The premium to sum assured condition remains an important exemption test. Broadly, the permitted ratio differs by the policy’s issue period and can include a more favourable threshold for a person with a disability or specified disease in certain cases. Because definitions and dates matter, the policy schedule and statute should be checked rather than relying on a generic percentage alone.

Are death benefits taxable?

Amounts received on the death of the insured are generally protected by a specific exception to the maturity tax restrictions, including the high premium rules. The recipient should still preserve the insurer’s payout statement and policy records. A categorical “always tax-free” claim is avoided because tax residence, ownership structures or other unusual facts may require professional review.

How is the taxable amount calculated?

Where a non-ULIP maturity receipt is taxable, the taxable income is generally the amount received less eligible premiums that have not already been claimed as a deduction elsewhere. It is usually assessed under income from other sources. For a taxable high premium ULIP, the capital gains computation applies instead. These are different calculations.

Illustrative example: A qualifying non-ULIP Policy issued after April 1, 2023, has annual premium of ₹6 lakh for 10 years and pays ₹85 lakh on maturity. If the exemption is unavailable and ₹60 lakh of premium is eligible for deduction in the computation, the illustrative income is ₹25 lakh. The actual figure can differ because the statute governs which premiums may be deducted and whether any amount was previously claimed.

Quick reference by policy type and date

Will the insurer deduct TDS?

If Life Insurance payment is not exempt, the insurer may have to deduct tax at source under the provision applicable on the payment date. TDS is not the final tax liability. The policyholder should reconcile the insurer’s certificate and tax statement, calculate the final taxable income under the correct head and claim eligible TDS credit in the return.

What records should you keep?

Keep the policy schedule, proposal details, premium receipts, annual statements, insurer payout certificate, surrender or maturity calculation, nominee documents, and TDS certificate where applicable. If several policies are tested together, maintain a year-wise premium schedule. These records make the aggregation test and tax-return disclosure easier to verify.

How can ABSLI help?

ABSLI can provide policy documents, premium history, and payout records for its policies. It cannot determine a customer’s complete tax position without knowing the customer’s wider facts. For a filing decision, use the policy records and consult a qualified tax professional. Product choice should be based on protection needs, affordability, policy benefits, exclusions, and terms, not tax treatment alone.

Also read

• What is life insurance?
• Life insurance tax benefits
• Understanding surrender value
  
  

References

• Income-tax Act, 2025 and Finance Bill 2026 materials | https://www.indiabudget.gov.in/
• Income Tax Department legislation and taxpayer resources | https://www.incometax.gov.in/iec/foportal/
• Finance Act 2023 memorandum explaining the high-premium non-ULIP amendment | https://www.indiabudget.gov.in/budget2023-24/doc/memo.pdf
• IRDAI Master Circular on Protection of Policyholders’ Interests 2024 | https://irdai.gov.in/
• Existing ABSLI article reviewed 18 September 2026 | https://lifeinsurance.adityabirlacapital.com/articles/life-insurance/are-life-insurance-maturity-proceeds-taxable-under-new-tax-regime/