Can you claim Term Insurance premium in your ITR?

The premium you pay for a Term Insurance Policy can be claimed as a deduction under Section 123 of the Income Tax Act, 2025, up to an aggregate limit of ₹1.5 lakh a year, but only if you file under the old tax regime.

Health-related riders attached to the plan qualify for a separate deduction under Section 126 subject to opting of old tax regime, and the death benefit your family eventually receives stays entirely tax-free. Here is exactly how each of these works, and how to enter them correctly in your ITR.

Which section lets you claim a deduction on the premium itself?

Section 123 of the Income Tax Act, 2025 allows a deduction on the annual premium for the base life-cover component of a Term Plan, up to ₹1.5 lakh a year subject to opting of old tax regime. This ₹1.5 lakh is not exclusive to Insurance. It is a combined ceiling shared with PPF, ELSS, EPF contributions, and Home Loan principal repayment, so the Term Insurance premium is one entrant into that shared bucket, not an extra allowance on top of it.

Can you claim a separate deduction for health riders on a Term Plan?

Yes, premiums paid specifically for health-related riders, such as a Critical Illness Rider or a Hospital Cash Rider, qualify for an additional deduction under Section 126 subject to opting of old tax regime, separate from, and on top of the ₹1.5 lakh Section 123 limit.

The Section 126 ceiling depends on age: ₹25,000 for yourself, your spouse, and dependent children if everyone is under 60. ₹50,000 if the policy covers a senior citizen and a further ₹25,000 or ₹50,000 for parents' premiums, depending on whether they are senior citizens.

One rule applies only to 126: premiums for health riders paid in cash are not eligible. The payment has to go through a cheque, demand draft, Net Banking, or a Debit or Credit Card.

Is the death benefit your family receives taxable?

No. The lumpsum death benefit paid to your nominee is fully exempt from income tax under Section 11(1) read with Schedule II of Income-tax Act, 2025, irrespective of how large the premium was, with very limited exceptions such as Keyman Insurance. This exemption applies regardless of which tax regime you filed under while you were alive. It is the one benefit that survives the regime switch.

For a Term Plan with Return of Premium (TROP), the maturity payout is also tax-free under the same provision, subject to condition of Section 11 read with schedule II.

Old tax regime or new tax regime: Which one lets you claim this?

If your total eligible deductions, Term Insurance included, are substantial, the old regime typically works out cheaper overall despite the higher slab rates. If you have few deductions to claim, the new regime's lower rates may still leave you better off even without the Term Insurance benefit. The death benefit exemption is the one constant either way.

How do salaried employees claim the deduction?

Salaried individuals go through two steps. First, you declare the premium to your employer, submitting the premium receipt or the annual certificate from your insurer. The base premium goes under the 123 fields and the rider premium under the 126 field. Your employer factors this into your monthly TDS, and it shows up in your Form 16.

Second, at return-filing time, these amounts are usually pre-filled from your Form 16data. Check them against your actual premium receipts before submitting.

How do self-employed individuals claim it?

There is no employer step. You enter the base premium under 123 and the rider premium under 126 directly while filing, typically using ITR-3 or ITR-4, depending on your business structure. Keep your premium payment receipts on hand. They are your primary evidence if the assessing officer asks for verification.

What documents should you keep ready?

• The premium payment receipt or annual premium certificate from your insurer, showing the 123 and 126 split.
• Proof of payments such as bank statements, cancelled cheques, or online payment records.

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Also read

• What is Term Insurance and how does it work?
• What is Convertible Term Insurance?
• What is an Incremental Term Life Insurance Policy?
• Tax Deducted at Source (TDS)