Is the death benefit from a 1 Crore term plan taxable for my wife?

No. Under Section 10(10D), the death benefit is completely tax-free for the nominee, regardless of the amount or the premium paid.

Does the 5 Lakh limit apply to my old policies from 2020?

No. The 5 Lakh annual premium limit only applies to life insurance policies issued on or after April 1, 2023.

Will I get 80C benefits if I switch to the New Tax Regime?

No. The New Tax Regime does not offer Section 80C deductions for insurance premiums, but the death benefit remains tax-free.

Is GST still charged on term insurance premiums in 2026?

No. The government has removed GST on term insurance premiums, making it 0% to encourage more people to buy life cover.

What happens if my total premium across three policies is 6 Lakh?

If policies were bought after April 2023, the maturity amount will be taxable since the aggregate premium exceeds the 5 Lakh limit.

How much TDS is deducted on taxable insurance maturity?

A 2% TDS is deducted on the income portion (maturity amount minus premiums paid) if the payout is not tax-exempt.

Tax on Term Insurance Payouts 2026: Maturity & Death Benefit Rules

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Tax on Term Insurance Payouts: Is the maturity amount taxable in 2026?

Clear the confusion around the 5 lakh premium limit, the 0% GST update, and how to keep your life cover tax-efficient.

5 min read

OneAssure Team

March 19, 2026

Need advice tailored to you?

Looking for the right plan? You don't have to guess. Let us compare the fine print for you and give you an unbiased recommendation.

Need advice tailored to you?

Looking for the right plan? You don't have to guess. Let us compare the fine print for you and give you an unbiased recommendation.

The Big Relief: 0% GST on Term Insurance

The government recently made a massive move. GST on term insurance premiums is now 0%. This is a huge win for your pocket. Earlier, you paid an 18% tax on top of your base premium. For a 30-year-old paying a premium of ₹25,000 for a ₹2 Crore cover, that was an extra ₹4,500 every year. Now, that money stays with you. It makes pure protection much more affordable. You get the same high cover for a significantly lower out-of-pocket cost. This change reflects a shift toward making basic financial security accessible to every Indian household.

The Sacred Section 10(10D): Death Benefits are Still Free

Your nominee receives the sum assured if something happens to you. This is the death benefit. Under Section 10(10D) of the Income Tax Act, this payout remains fully tax-free. There is no upper limit here. Even if your policy pays out ₹10 Crore, your family will not owe the taxman a single paisa. This holds true regardless of the annual premium you pay. High-value policies are still the most efficient way to pass on a legacy. The government views this as a social safety net. They do not want to tax a family in their moment of grief. Your nominee just needs to keep the claim settlement letter and the bank statement as proof for their records.

The 5 Lakh Trap: When Maturity Becomes Taxable

Rules changed for policies issued after April 1, 2023. If your total annual premium across all life insurance policies exceeds ₹5 Lakh, the maturity amount is no longer tax-free. This mostly affects Term Return of Premium (TROP) plans. Imagine you pay ₹6 Lakh a year for a high-value TROP plan. You survive the term. The insurer returns your premiums. Because you crossed the ₹5 Lakh threshold, that returned amount is now taxable. It is treated as 'Income from Other Sources'. You only pay tax on the profit part. That is the maturity amount minus the total premiums you paid over the years. If you have multiple policies, the ₹5 Lakh limit is an aggregate. You cannot split a ₹6 Lakh premium into two ₹3 Lakh policies to escape this. The tax office looks at your total yearly outgo across all non-ULIP life insurance plans.

The 2% TDS Rule on Maturity

The tax department does not wait for you to file your returns. If your maturity payout is taxable, the insurance company will deduct 2% as TDS (Tax Deducted at Source). This rate was recently reduced from 5% to 2% to ease the burden on taxpayers. This deduction happens only if the payout exceeds ₹1 Lakh and is not exempt under Section 10(10D). If you fall into this bracket, ensure your PAN is updated with the insurer. Without a PAN, the TDS rate could jump to 20%. When you file your ITR, you can claim credit for this TDS. It is a simple way for the government to track high-value insurance gains.

Riders: Critical Illness and Disability Payouts

Many of us add riders to our term plans. A Critical Illness rider might pay you ₹20 Lakh on diagnosis. Is this taxable? Usually, these payouts are considered a capital receipt for health restoration and are not taxed. However, the premium you pay for these riders qualifies for deduction under Section 80D, not 80C. This is the same section used for health insurance. It is a smart way to maximize your tax savings. You get the benefit of 80C for the base term plan and 80D for the riders. Just remember that the payout is meant to cover your treatment costs. It is not an income, so it stays in your pocket.

Old vs. New Tax Regime: The Premium Dilemma

The choice of tax regime changes how you look at premiums. In the Old Tax Regime, your term insurance premium is deductible under Section 80C up to ₹1.5 Lakh. This can save you up to ₹45,000 in taxes if you are in the 30% bracket. In the New Tax Regime, this deduction is gone. You pay the premium from your post-tax income. Does this make term insurance bad? Not at all. The primary goal is protection, not tax saving. Even in the New Regime, the death benefit remains 100% tax-free. The 0% GST update makes the New Regime even more attractive because the base cost of the policy has dropped. You are no longer paying tax on a tax-saving product.

How Nominees Should Report Claims

Nominees often panic during tax season. If they receive a death claim, they must mention it in their ITR. They should report it under the 'Exempt Income' section. Use the specific field for Section 10(10D). It does not add to their taxable income. It is just a disclosure. Keeping the insurer's discharge voucher is important. It acts as proof that the money came from a life insurance claim. Most people miss this step. Clear reporting prevents unnecessary notices from the IT department later. At OneAssure, we often see that clarity in documentation is what saves families from future stress.Tax laws will keep evolving. But the core of term insurance remains untouched. It is a tool for protection, not a tax dodge. Keep your aggregate premiums below ₹5 Lakh if you want tax-free maturity. Focus on pure term plans instead of TROP if you want the best value. Protection is now cheaper than ever with the GST removal. Secure your family first. The tax benefits are just a bonus.