• Section 80C belonged to the Income-tax Act, 1961.
• Section 123 now covers the corresponding deduction under the Income-tax Act, 2025.
• The aggregate deduction limit remains Rs. 1.5 lakh.
• Eligible life insurance premiums continue to be included among the qualifying payments.
• Section 123 deductions are not available under the new tax regime. 

So, while you may still see references to term insurance tax benefits under Section 80C, the provision applicable from 1 April 2026 is Section 123. 

Section 80C was a provision under the Income-tax Act, 1961 that allowed individuals and Hindu Undivided Families (HUFs) to claim deductions for specified payments, including eligible life insurance premiums. The aggregate deduction under the relevant provisions was capped at Rs. 1.5 lakh.

This provision applied up to 31 March 2026. Therefore, references to claiming term insurance premium deductions under Section 80C are relevant to the earlier tax framework.

From 1 April 2026, the Income-tax Act, 2025 came into effect for tax year 2026-27. The corresponding deduction is now provided under Section 123.

The change is primarily a restructuring of the tax law. The Income Tax Department states that Section 123 retains the Rs. 1.5 lakh aggregate deduction for specified savings instruments and that eligible payments such as life insurance premiums remain substantially unchanged in nature.

Section 80C vs Section 123 at a glance:

Note: The Rs. 1.5 lakh limit is an aggregate limit for specified eligible payments, not a separate Rs. 1.5 lakh deduction available only for term insurance.

• Reduction in taxable income:

An eligible deduction reduces the amount of income considered for tax purposes. However, the actual tax saving depends on your taxable income, applicable tax rate and other deductions.

• Financial protection with a tax benefit:

Term insurance primarily provides financial protection to your family. Where the premium qualifies for a deduction, the tax benefit can be an additional consideration rather than the main reason for buying the policy.

• Encourages financial planning:

Regular premium payments can help you maintain life insurance protection over the selected policy term. The applicable tax deduction may provide an additional benefit when you plan your finances.

• Coverage for eligible family members:

Under the new Section 123 framework, Schedule XV provides for qualifying life insurance premiums paid for policies covering the life of the individual, spouse or child, subject to the prescribed conditions.

Compare plans and get quote based on your coverage needs first, then consider the applicable tax treatment for your premium.

Schedule XV states that, for a life insurance policy issued on or after 1 April 2012, the qualifying premium is subject to the condition that it does not exceed 10% of the actual capital sum assured. Specific higher limits apply in certain cases covered by the Schedule.

The deduction is also subject to conditions relating to the continuation of the insurance policy. For example, Schedule XV provides disallowance conditions where a policy is terminated or premiums stop and the policy is not revived within the prescribed period.

The applicable tax regime also matters. Section 123 deductions are not available under the new tax regime.

From 1 April 2026, this role continues through Section 123. The Income Tax Department has confirmed that the Rs. 1.5 lakh aggregate deduction and the nature of qualifying payments, including life insurance, remain substantially unchanged under the new Act.

Here is how the benefit can fit into your financial planning:

• Risk management: Term insurance can provide financial protection to your dependants.
• Tax planning: Eligible premiums can contribute towards the applicable deduction limit.
• Long-term planning: Regular premiums help maintain life cover throughout the policy term.
• Better allocation: Any tax saving may leave more money available for other financial goals.

However, tax saving should not be the only reason to choose term insurance. Your life cover should first reflect your family's financial responsibilities.

• Check your eligibility:

For premiums paid from 1 April 2026, review the conditions under Section 123 and Schedule XV rather than relying only on the older Section 80C rules.

• Compare premium and coverage:

Do not select a policy only because its premium is lower. Check whether the sum assured provides adequate financial protection for your family.

• Understand the policy terms:

Review the policy term, premium payment requirements, exclusions and other conditions before purchasing the policy.

• Keep your documents:

Maintain your policy documents and premium payment records. These can help you provide the required information when claiming an eligible deduction.

• Check your tax regime:

Section 123 deductions are not available under the new tax regime. If you are considering the deduction, check whether the tax regime you use permits it.

• Stay updated on tax rules:

Tax provisions can change. Check the rules applicable to the relevant tax year before making a tax claim.

Assess your coverage needs first, then compare plans and check the tax treatment applicable to your situation.

Keep these points in mind:

• Using Section 80C for current tax years: Section 80C belongs to the earlier Act. From 1 April 2026, refer to Section 123.
• Treating Rs. 1.5 lakh as a term insurance-only limit: The limit applies in aggregate to specified eligible payments.
• Ignoring the tax regime: Section 123 deductions are not available under the new concessional tax regime. 
• Assuming every premium qualifies: The policy and premium must meet the applicable conditions.
• Ignoring the premium-to-sum-assured condition: Schedule XV prescribes limits for qualifying life insurance premiums. 
• Not keeping payment records: Keep premium receipts and policy documents for your records.
• Buying insurance only for tax savings: Your primary consideration should be the financial protection your family needs.

Tax treatment can differ depending on the type of rider and the applicable provisions. You should therefore avoid assuming that every rider automatically qualifies for a separate deduction.

For example, health insurance-related deductions may fall under provisions applicable to health insurance rather than the life insurance premium deduction. The eligibility and limits depend on the nature of the payment and the applicable tax rules.

Before claiming a deduction for a rider premium, check the policy documents and the tax provision applicable to that specific rider. If you are unsure, consult a qualified tax adviser.

Section 80C was an important tax provision for eligible life insurance premiums under the Income-tax Act, 1961 until 31 March 2026. From 1 April 2026, the corresponding deduction is covered under Section 123 read with Schedule XV of the Income Tax Act, 2025.

The aggregate deduction limit remains Rs. 1.5 lakh, and the Income Tax Department has confirmed that qualifying payments such as life insurance premiums continue under the new framework. However, the Section 123 deduction is not available under the new concessional tax regime.

When choosing term insurance, focus first on the life cover your family may need and the premium you can comfortably maintain. Tax benefits can then be considered as part of your overall financial planning.

Tax laws are subject to change. BFL does NOT provide Tax/Investment advisory services. Please consult your advisors.