Section 80C and life insurance

What is section 80C?

Section 80C of the Income-tax Act, 1961 lets an individual or a Hindu undivided family (HUF) deduct certain payments and investments from taxable income, up to ₹1.5 lakh in a year. Life insurance premiums are one of the oldest items on the list, alongside provident fund contributions, PPF, ELSS mutual funds, home loan principal, tuition fees and others. Premiums for pension or annuity plans of life insurers (section 80CCC) share the same ₹1.5 lakh ceiling.

As of October 2026, the Income-tax Act, 2025 is in force from 1 April 2026. The deduction now sits in section 123 of the new Act, read with Schedule XV, which lists the qualifying payments. Section 80C remains the name most people search for, and it still governs income earned up to 31 March 2026 (financial year 2025-26, assessed in 2026-27).

How the life insurance deduction works

The sum assured test matters most for single premium and short-term savings plans, where the premium can be large relative to the sum assured. The part of the premium above the cap is not deductible, and the same ratio also affects whether the maturity amount is tax-free under section 10(10D).

Old regime and new regime

Since financial year 2023-24 the new tax regime has been the default for individuals, under section 115BAC of the 1961 Act (section 202 of the 2025 Act). The new regime does not allow the section 80C deduction. After the Finance Act, 2025, the new regime has nil tax up to ₹4 lakh of income and slab rates rising from 5% to 30%, and resident individuals with income up to ₹12 lakh pay no tax because of the rebate under section 87A (section 156 of the 2025 Act). Salaried people also get a standard deduction of ₹75,000 under the new regime.

The result is that a large share of salaried taxpayers now get no tax benefit from life insurance premiums. Taxpayers can still choose the old regime if their deductions make it cheaper; salaried individuals without business income can make that choice each year when filing the return.

What section 80C means for distribution

• Tax-saving season has shrunk. For years, January to March was the peak for traditional life sales because employers asked for investment proofs. With most salaried taxpayers on the new regime, the "save tax under 80C" pitch reaches fewer buyers. Insurers and agents have had to sell protection and savings on their own merits.
• Check the customer's regime before using tax as a reason. An adviser who tells a new-regime taxpayer that a premium "saves tax" is mis-selling. The right question is which regime the customer files under, and whether the deduction would change that choice.
• Sum assured ratio drives product design. Savings plans are usually built so the premium stays within 10% of the sum assured, keeping both the 80C deduction and the 10(10D) exemption. Distributors should check this in the benefit illustration for single premium and limited pay products.
• Use the new section numbers in documents. Premium certificates, sales material and customer letters issued from April 2026 should refer to section 123 of the Income-tax Act, 2025, with section 80C in brackets for familiarity.
• Term insurance gains on clarity. Pure term insurance premiums are small relative to the sum assured, so they always meet the ratio test. Since the GST exemption of September 2025, individual term plans also carry no GST, which strengthens the protection pitch regardless of tax regime. See GST on insurance.
• Lapse within two years reverses the benefit. Customers who stop paying a traditional policy within two years lose the deduction already claimed. This is worth explaining when a policy is sold mainly for tax.