Tax Benefits Overview — Two Sections
LIC policies offer tax benefits under two separate sections of the Income Tax Act, 1961:
Section 80C
On Premium Payment
Deduction up to ₹1,50,000/year on premiums paid for LIC policies. Reduces your taxable income. Available in old tax regime only.
Section 10(10D)
On Maturity / Death Claim
Maturity & death claim proceeds are tax-free — you don't pay any tax on the money you receive. Works in both old and new tax regimes (conditions apply).
Section 80C — Premium Deduction
When you pay LIC premiums, you can claim a deduction from your taxable income under Section 80C. Here are the rules:
| Rule | Details |
|---|
| Maximum Deduction | ₹1,50,000 per financial year (combined with PPF, ELSS, EPF, etc.) |
| Eligible Premiums | Premium paid for self, spouse, and children only |
| Not Eligible For | Parents, siblings, in-laws, or any other relative |
| Premium Limit | Maximum premium eligible = 10% of Sum Assured (for policies after 01-Apr-2012) |
| Tax Regime | Old regime ONLY — not available in new regime |
| All LIC Plans Eligible? | Yes — endowment, money back, whole life, term, ULIP |
How much tax do you actually save? It depends on your income tax slab:
| Tax Slab (Old Regime) | Tax Rate | Tax Saved on ₹1.5L |
|---|
| ₹2.5L – ₹5L | 5% | ₹7,500 |
| ₹5L – ₹10L | 20% | ₹30,000 |
| Above ₹10L | 30% | ₹45,000 + cess |
Section 10(10D) — Tax-Free Maturity
This is the bigger benefit. When your LIC policy matures, the entire payout — Sum Assured + Bonus + FAB — can be completely tax-free:
| Scenario | Tax-Free? | Condition |
|---|
| Maturity (policy after 01-Apr-2012) | ✅ Yes | Annual premium must be ≤ 10% of Sum Assured |
| Maturity (policy before 01-Apr-2012) | ✅ Yes | Annual premium must be ≤ 20% of Sum Assured |
| Death Claim | ✅ Always | No conditions — always 100% tax-free |
| Survival Benefits (Money Back) | ✅ Yes | Same 10% rule applies |
| Premium > 10% of SA | ❌ Taxable | Maturity proceeds become taxable as income |
The 10% Rule — Critical Condition
This is the most important rule to understand for LIC tax benefits:
Annual Premium must be ≤ 10% of Sum Assured
Example:
- If your Sum Assured = ₹10,00,000, max premium for tax-free maturity = ₹1,00,000/year
- If your Sum Assured = ₹5,00,000, max premium = ₹50,000/year
- If your premium exceeds this limit, maturity proceeds become taxable under Section 56
✅ Good news: For most standard LIC endowment and money back plans, the premium is naturally below 10% of SA. You only need to worry about this rule for very short-term plans, single premium plans, or plans with riders that inflate the premium significantly.
Old vs New Tax Regime — Impact on LIC
Since Budget 2023-24, the new tax regime is the default. Here's how it affects LIC tax benefits:
| Tax Benefit | Old Regime | New Regime |
|---|
| Section 80C (Premium Deduction) | ✅ Available | ❌ Not Available |
| Section 10(10D) (Tax-Free Maturity) | ✅ Available | ✅ Available |
| Death Claim Tax-Free | ✅ Always | ✅ Always |
💡 Expert Tip (Haresh Hirapara): Even under the new tax regime, LIC maturity and death claims remain tax-free. The only loss is the 80C deduction on premiums. If you're in the 30% tax bracket and have significant deductions, the old regime may still save you more tax. Consult your CA or tax advisor for your specific situation.
Tax Saving Example — ₹10 Lakh SA, Jeevan Anand
Let's see the total tax benefit over the life of a policy:
| Component | Amount |
|---|
| Policy | Jeevan Anand (715), Age 30, 20yr, ₹10L SA |
| Annual Premium (approx.) | ~₹61,500 |
| 10% of SA check | ₹61,500 < ₹1,00,000 ✅ Pass |
| 80C Tax Saved per Year (30% slab) | ₹61,500 × 30% = ₹18,450 |
| Total 80C Tax Saved (20 years) | ₹18,450 × 20 = ₹3,69,000 |
| Estimated Maturity Amount | ~₹22,20,000 |
| Tax on Maturity | ₹0 (Tax-Free under 10(10D)) |
Total benefit: You save ₹3.69 Lakh in taxes on premiums AND receive ₹22.2 Lakh completely tax-free. The effective post-tax return is significantly higher than the pre-tax return.
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Frequently Asked Questions
Is LIC premium eligible for tax deduction?+
Yes. LIC premiums paid for self, spouse, and children are eligible for tax deduction under Section 80C up to ₹1,50,000 per year. This is available under the old tax regime only. The deduction is shared with other 80C investments like PPF, ELSS, EPF, etc.
Is LIC maturity amount tax-free?+
Yes, under Section 10(10D), provided the annual premium does not exceed 10% of the Sum Assured (for policies after April 2012). If this condition is met, the entire maturity amount — SA + Bonus + FAB — is 100% tax-free. This applies under both old and new tax regimes.
Can I claim LIC tax benefit under new tax regime?+
Partially. Under the new tax regime, Section 80C deduction is NOT available — so you cannot claim deduction on premiums paid. However, the maturity and death claim proceeds remain tax-free under Section 10(10D) in both regimes. So you still get the bigger benefit.
Is LIC death claim taxable?+
No, never. Death claim proceeds from any LIC policy are always 100% tax-free under Section 10(10D), regardless of premium amount, policy type, or tax regime. The 10% premium rule does not apply to death claims.
Can I claim tax benefit for LIC premium paid for parents?+
No. Section 80C deduction for life insurance premiums is available only for premiums paid for self, spouse, and children. Premiums for parents are not eligible. However, you can claim health insurance premiums for parents under Section 80D (up to ₹25,000 or ₹50,000 for senior citizen parents).
What happens if I surrender my LIC policy — is the amount taxable?+
If you surrender your LIC policy, the surrender value received is tax-free under Section 10(10D) only if the policy has been in force for at least 2 years (for policies bought after 01-Apr-2012) AND the 10% premium rule is satisfied. Additionally, if you claimed 80C deduction on premiums and surrender before 2 completed years, the deductions may be reversed and added to your taxable income.
⚠️ Disclaimer
This article is for educational and informational purposes only. LIC-Calculator.com is not affiliated with LIC of India and is not a tax advisory service. Tax laws are subject to change. The information is based on the Income Tax Act as applicable for FY 2025-26. Premium and maturity figures mentioned are approximate.
This is not tax or financial advice. Please consult a qualified Chartered Accountant (CA) or tax advisor for advice specific to your situation. For official tax information, visit incometaxindia.gov.in.