From 22 September 2025, individual term insurance premiums are exempt from GST. Under the Income-tax Act, 2025, Section 123 retains an aggregate deduction of up to ₹1.5 lakh for eligible life insurance premiums and other specified payments, subject to applicable conditions and the old tax regime. The new regime does not allow this deduction. Your actual tax benefit depends on your eligibility and chosen regime.
For many families, term insurance is primarily about ensuring that dependants have financial support if the policyholder dies. However, the cost and tax treatment of that protection have changed. Tax Year 2026–27 (FY 2026–27) brings the GST exemption for individual life insurance policies and the transition from Section 80C of the earlier Income-tax Act to Section 123 of the Income-tax Act, 2025.
What has changed for term insurance?
From 22 September 2025, GST was reduced to zero on individual life insurance policies, including term insurance. Previously, an 18% GST component increased the amount payable. The exemption reduces this component, although the insurer's base premium continues to depend on factors such as age, health, cover and policy duration.
Illustrative comparison assuming an unchanged base premium.
What does Section 123 mean for term insurance?
Section 123, read with Schedule XV, retains the aggregate ₹1.5 lakh deduction framework for eligible payments, including qualifying life insurance premiums. It is not a separate ₹1.5 lakh deduction for term insurance alone. There is one important condition: Section 123 is available only under the old tax regime, not under the new regime.
Premium eligibility is subject to statutory conditions. For policies issued on or after 1 April 2012, the qualifying premium is generally limited to 10% of the actual capital sum assured, with a higher limit for specified disability or illness cases.
Consider a taxpayer in the 30% tax bracket who pays an eligible annual premium of ₹20,000 and has the full deduction limit available. At a 30% marginal rate plus 4% health and education cess, the illustrative income-tax saving is ₹6,240. Combined with the ₹3,600 GST saving, the difference could be ₹9,840 against the earlier GST treatment, assuming all other factors remain unchanged. This is not a guaranteed saving for every policyholder.
Which tax regime is better in 2026–27?
The choice depends on income, eligible deductions and individual circumstances. The new regime offers lower slab rates, with a nil slab up to ₹4 lakh, and a Section 87A rebate that makes ordinary income up to ₹12 lakh effectively tax-free for eligible resident individuals, subject to statutory conditions. The old regime may be worth evaluating for taxpayers with substantial eligible deductions.
Use an income tax calculator to compare your estimated liability under both regimes before deciding. Run the numbers both ways before you file.
What does term insurance actually save?
Tax savings are only one part of the decision. The primary purpose of term insurance is income protection for dependants. A rough starting point is cover worth 10–15 times annual income, adjusted for outstanding loans, future expenses and existing assets. Compare term insurance options after assessing your family's financial needs.
Qualifying life insurance proceeds may also receive an income-tax exemption, subject to the applicable statutory conditions. Section 10(10D) is the familiar reference under the earlier Income-tax Act, 1961; the corresponding provision under the Income-tax Act, 2025 should be verified before publication. Death benefits and other policy proceeds should not be described as universally tax-exempt without qualification.
PNB MetLife offers term insurance options that customers can assess against their financial responsibilities and required level of protection. Tax benefits can improve affordability, but adequate cover and the needs of dependants should remain central to the decision.
Frequently asked questions
Is term insurance GST-free in 2026?
Yes. Individual term insurance premiums are exempt from GST from 22 September 2025.
Can I claim term insurance premiums under the new tax regime?
No. The Section 123 deduction is not available under the new regime.
Is Section 123 the same as Section 80C?
Section 123 retains the earlier ₹1.5 lakh aggregate deduction framework for specified eligible payments, with qualifying payments set out in Schedule XV.
Is the term insurance death benefit taxable?
Qualifying death benefits are generally exempt, subject to applicable law and conditions. Confirm the relevant provision under the Income-tax Act, 2025 before publication.
Does group term insurance still attract GST?
Yes. Group life and group term insurance policies continue to attract 18% GST.
