Is Term Insurance exempted under 80C/123 or 80D/126 in India?

If you are buying Term Insurance in 2026, the tax question comes up almost immediately: does the premium qualify under Section 80C/123 or Section 80D/126? The short answer is both, but for different components of your policy, and only under the old tax regime. Aditya Birla Sun Life Insurance (ABSLI), a life insurer regulated by the Insurance Regulatory and Development Authority of India (IRDAI), settled 98.86% of individual death claims with 630+ crore total claims paid in FY 2025-26, as per IRDAI and insurer public disclosures (Form L-40).

And in the current post-Budget environment, there is one more piece of good news. GST on Individual Life Insurance premiums dropped from 18% to 0% effective 22 September 2025, so your protection now costs less even before any tax deduction. Here is exactly how the tax treatment of term insurance works in 2026.

Term Insurance tax benefits under Section 80C/123 and 10(10D)/11 read with schedule II

These are the two provisions that matter most for every Term Insurance buyer:

• Section 80C (base premium): The premium you pay for the life cover itself is deductible under Section 80C of the Income-tax Act, 1961 (Section 123 of the Income-tax Act, 2025), up to the overall limit of Rs 1.5 lakh per financial year. This limit is shared with other 80C instruments such as PPF, ELSS, and EPF. Deduction is available subject to old tax regime.
• Section 10(10D) (payouts): The death benefits your nominee receives is fully exempt from tax under Section 10(10D) (Section 11 read with Schedule II of the Income-Tax Act, 2025), and this exemption applies regardless of which tax regime the nominee follows. For term plans with return of premium, the maturity benefit is also tax-free provided the annual premium did not exceed 10% of the sum assured in any policy year.

Where does Section 80D/126 enter?

Section 80D (Section 126 of the Income-tax Act, 2025) is primarily dedicated to health-related expenses. The base Term Insurance premium does not qualify under 80D. However, the premium paid specifically for health-related riders attached to your Term Plan can be claimed under 80D, separately from the 80C limit. Eligible riders include:

• Critical Illness Rider, which pays a lump sum on diagnosis of a covered serious illness. Searches for critical illness riders are up 40% year on year in 2026, making this the most popular rider addition.
• Hospital Care and Surgical Care Riders, which cover hospitalisation and surgery costs.
• The 80D limit is Rs. 25,000 per year for self, spouse, and dependent children (Rs 50,000 if covering a senior citizen), over and above the Rs. 1.5 lakh under 80C. Combining a base term plan (80C) with a health rider (80D) is the simplest way to extend your total deduction beyond Rs. 1.5 lakh while strengthening your protection. Deduction is available subject to old tax regime.

Old vs. new tax regime: The 2026 reality check

This is the most important update for 2025-26. The new tax regime is now the default, and Sections 80C/123 and 80D/126 deductions are available only if you opt for the old tax regime. If you follow the new regime, you cannot claim these deductions on your Term Insurance premium. What remains constant in both regimes is the Section 10(10D) /11 read with schedule II exemption: the death benefit paid to your nominee stays completely tax-free either way.

In other words, the core promise of Term Insurance is regime-proof; only the premium deduction depends on your regime choice. If your total deductions (80C, 80D, Home Loan interest, and so on) are substantial, the old regime may still work out better. Run the numbers before filing.

How to maximise your Term Insurance tax benefits?

• Claim the base premium under 80C/123 up to the Rs. 1.5 lakh limit (old regime).
• Add a health rider and claim it under 80D/126 for up to Rs. 25,000 more in deductions while covering critical illness risk (old regime).
• Keep premiums within 10% of the sum assured to protect the tax-free status of payouts under 10(10D)/11.
• Keep documentation ready, such as, premium receipts and the annual premium certificate from your insurer for Form 12BB or ITR filing.
  

You can structure this in minutes. Estimate your premium with the ABSLI Term Insurance calculator and explore plans with critical illness riders such as the ABSLI DigiShield Plan.

Conclusion

So, is Term Insurance exempted under 80C/123 or 80D/126? The base premium sits under 80C/123, health rider premiums sit under 80D/126, and the payout is protected under 10(10D/11 read with schedule II) in every scenario. With 0% GST on premiums since 22 September 2025 and a Rs. 1 crore cover now the widely accepted adequacy benchmark, Term Insurance in 2026 is not merely a tax-saving expense. It is the essential, foundational promise you make to your family's financial stability. Treat the tax benefits as a welcome bonus, not the primary goal.