Insurance premiums are among the most widely used — and most widely miscalculated — tax deductions in India. Three sections of the Income-tax Act cover most of the benefit: 80C for life insurance premiums and related investments, 80D for health insurance, and 80CCD for NPS contributions. Here is how each one works in plain language.

Read more: One Year of GST-Free Health Insurance: Did Premiums Actually Come Down?.

Section 80C: Life Insurance Premiums (Rs 1.5 Lakh Cap)

Premiums paid for life insurance policies on yourself, your spouse or your children qualify for deduction under Section 80C, up to the overall 80C limit of Rs 1.5 lakh a year (shared with PPF, ELSS, EPF, home-loan principal and more). Conditions:

  • For policies issued on or after April 1, 2012, the annual premium must not exceed 10% of the sum assured (20% for some policies issued before that date).
  • The policy must be a valid life insurance contract — premium-heavy endowment and ULIP plans with tiny cover can lose the benefit.
  • Premiums for policies taken for any other person (e.g., siblings) do not qualify.

Section 80D: Health Insurance Premiums (Rs 25,000 + Rs 50,000 Hijack)

Just about everyone (below 60) can claim up to Rs 25,000 for premiums on self, spouse and dependent children. The deductions layer on top of 80C:

  • Parents under 60: an additional up to Rs 25,000 for their health premiums.
  • Self or parents aged 60+: the limit rises to Rs 50,000 each for the senior citizen(s).
  • Preventive health check-ups qualify too (up to Rs 5,000 within the limit).

Under the new (default) tax regime introduced in 2023-24, 80D deductions are not available — only the older regime offers them. Most taxpayers should compare regimes before relying on these.

Section 80CCD(1B): Extra Rs 50,000 for NPS

Beyond the Rs 1.5 lakh 80C limit, contributions to the National Pension System (NPS) qualify for an extra deduction of up to Rs 50,000 under 80CCD(1B). The annuity purchased with NPS corpus at retirement is also tax-efficient. 80CCD(1B) is available in the new regime too — one of the few tax breaks that survived.

Section 10(10D): Tax-Free Maturity

The payout side matters as much as the premium side. Life insurance maturity or death proceeds are generally tax-free under Section 10(10D) — but the exemption requires the premium to stay within 10% of sum assured, and key-person insurance or policies where the premium exceeds that threshold turn part of the payout taxable. Health insurance claim payouts (reimbursement/cashless) are not taxable income; disability benefits similarly.

Common Errors

  • Claiming 80D on the old vs new regime — deductions depend entirely on regime choice.
  • Buying high-premium policies purely to 'save tax' — a Rs 1,50,000 premium saving ~Rs 46,000 of tax on a money-losing plan is a bad trade.
  • Overlooking the 10% of sum-assured cap on 80C, which silently dashes both deduction and 10(10D) exemption on low-cover endowment plans.
  • Omitting parent health premiums from 80D — one of the most common under-claims.

Bottom Line

Used correctly, healthcare and life premiums can shield a wholesome Rs 1.9 lakh+ from tax each year. The rules are regime-dependent and product-dependent — verify your figures, keep premium payment proofs, and remember the deduction is a bonus, not the reason to own insurance.

Source: BimaNiti analysis under the Income-tax Act, 1961 (2026)