Term Insurance Tax Benefit: How the New Tax Slab 2025-26 Impacts Your Returns

Term insurance is among the safest and most dependable ways of securing your family’s future when it comes to finances. It provides a high sum assured for a low premium. The best part is that term insurance offers tax benefits as well under the old tax regime. With the government implementing the new tax slab, you may want to know how the changes will affect your term insurance policy.

Term Insurance: An Overview

Term insurance is a type of life insurance plan that provides coverage for a chosen term, which is called the policy term. In case of untimely demise of the life insured within the term, the nominee gets the sum assured. Unlike other forms of insurance, term plans do not have any investment or maturity element; they are strictly protection-oriented. Due to this, term insurance costs are lower, and high coverage can be acquired at a low cost.

Understanding Term Insurance Tax Benefit

When you buy term insurance, the premiums you pay can help you save tax. This occurs under various Income Tax Act sections:

• Section 80C (applicable only under the old tax regime): You can claim up to ₹1.5 lakh in tax deductions for the premium you pay for your term plan.
• Section 10(10D): If the plan conditions are fulfilled, the death benefit is completely tax-free.

Term insurance not only gives you peace of mind, but also helps you reduce your taxable income, saving you money every year.

The Shift from Old to New Tax Regime

Many people follow the old tax regime, which allowed a number of exemptions and deductions, such as those under Sections 80C and Section 80D, and it is still widely used. However, the government implemented a new tax system with simpler slabs and lower tax rates. It removed most exemptions and deductions, including the one for term insurance premiums.
Taxpayers now have two choices:
1. Stay on under the old regime and get the term insurance tax benefit.
2. Switch to the new regime with lower rates but no exemptions.

What’s New in the Tax Slabs for 2025-26?
To provide more relief to middle-income earners, the new tax slab 2025–26 has undergone a minor restructuring. Here is a table to help you understand the new slabs:

The government is encouraging taxpayers to adopt the new regime by making it more attractive for low- and middle-income brackets.

How Does The New Tax Regime Affect Your Term Insurance?

With the new 2025-26 tax slab, you cannot claim Section 80C deductions for the premiums you paid towards your term insurance plan.
For example, under the old regime, if your annual income is ₹10 lakh and you pay a ₹20,000 term insurance premium, you can claim this premium under Section 80C. Your taxable income would drop to ₹9.8 Lakh as a result, saving you money on taxes. However, this benefit won’t be applicable under the new tax regime.

Under the new tax regime, your taxable income will remain ₹10 lakh because no deductions are applicable for term insurance premiums.

How to Decide Between the Old and New Regime?

Here’s a simple way to make your decision:

1. Work out your tax in both regimes.

•  Old regime: Subtract all eligible deductions such as Section 80C (term insurance, ELSS, etc.), Section 80D (health insurance), and housing loan interest from your total income.
• New regime: Apply the tax slabs directly to your total income without subtracting any deductions.

2. Compare the results: Choose the option where your total tax payable is lower.
3. Think about the long-term: If you have consistent investments and use Section 80C every year, the old regime might still give you better savings in the long run.

Making the Most of Your Term Insurance in 2025-26

Even if you go with the new regime and lose the tax deduction, term insurance remains a must-have for your family’s financial security. Following is how you can make the most of your policy:

• Lock in a low premium early: The younger you are when you buy the policy, the lower your premiums will be for the whole term.
• Choose the right coverage amount: To ensure that your financial needs are met, aim for at least 10 to 15 times your annual income.
• Review your policy regularly: Make sure your coverage is up to date with your life changes.
• Add useful riders: By adding options like critical illness or accidental death riders, you can get extra protection at a small additional cost.

Conclusion

The new tax slab for 2025–26 changes how you benefit from term insurance in terms of tax savings. However, it doesn’t change its core purpose, protecting your loved ones. Even if you lose the Section 80C deductions under the new tax regime, the value of having a financial safety net doesn’t change. Tax benefits might be important, but your family’s security and peace of mind are what really matter. Term insurance is a crucial component for your financial planning, regardless of whether you stick with the old regime or adopt the new one.

About The Author

friskystoryravi

See author's posts