The Income Tax Department has highlighted the major tax deductions available to taxpayers on payments made towards life insurance policies, health insurance premiums and medical treatment expenses under the Income-tax Act, 2025, as amended by the Finance Act, 2026. These provisions can help individuals and Hindu Undivided Families (HUFs) reduce their taxable income while securing financial protection for themselves and their families.
The department has clarified that deductions available under Sections 123 to 154 are deducted from Gross Total Income (GTI) to arrive at taxable income, subject to prescribed conditions and limits.
Tax Deduction on Life Insurance Premium Under Section 123
Section 123 allows individuals and HUFs to claim deductions for life insurance premiums, investments in Public Provident Fund (PPF), National Savings Certificate (NSC), housing loan principal repayment, Senior Citizen Savings Scheme, and other specified investments.
For individuals, the deduction can be claimed on life insurance policies taken in the name of self, spouse, or children. HUFs can claim the benefit for policies covering any member of the HUF. No deduction is available for policies taken in the name of other relatives.
The overall deduction available under Section 123 is capped at Rs 1.5 lakh.
Premium Restrictions Based on Sum Assured
The Income Tax Department has specified limits on the amount of premium eligible for deduction:
- Up to 20% of the capital sum assured for policies issued on or before March 31, 2012.
- Up to 10% of the capital sum assured for policies issued on or after April 1, 2012.
- Up to 15% for policies issued on or after April 1, 2013, in the name of a person with disability, severe disability, or specified disease.
Minimum Holding Period Requirement
Taxpayers must also ensure that the policy is not terminated before the prescribed holding period. The minimum holding period for a life insurance policy is two years, while certain other investments require a five-year holding period. Premature termination may result in withdrawal of earlier tax benefits.
Health Insurance Tax Benefits Under Section 126
Section 126 provides deductions for health insurance premiums, contributions to notified health schemes, preventive health check-ups, and medical expenditure incurred on senior citizens where health insurance is not available.
For individuals, deductions can be claimed for premiums paid for self, spouse, dependent children, and parents. HUFs can claim deductions for policies covering any member of the family.
Maximum Deduction Limits
The deduction limits under Section 126 are:
- Up to Rs 25,000 for self, spouse, and dependent children.
- Up to Rs 25,000 for parents.
- Up to Rs 50,000 for medical expenditure incurred on senior citizens where no health insurance exists.
- The preventive health check-up component is capped at Rs 5,000.
The deduction limit increases to Rs 50,000 in cases involving senior citizens.
Important Payment Condition
The health insurance premium must be paid through any mode other than cash. However, preventive health check-up expenses can be paid in cash and still qualify for deduction.
Deduction for Maintenance of a Dependent with Disability
Resident individuals and HUFs can claim tax benefits under Section 127 for expenses incurred on medical treatment, rehabilitation, training, or insurance schemes meant for dependent persons with disabilities.
The deduction available is:
- Rs 75,000 for a dependent person with disability.
- Rs 1,25,000 for a dependent person with severe disability (80% or more disability).
Importantly, this is a flat deduction and is available irrespective of the actual amount spent, provided the prescribed conditions are fulfilled.
Deduction for Treatment of Specified Diseases
Section 128 allows resident individuals and HUFs to claim deductions for medical treatment expenses incurred on specified diseases or ailments. The deduction is available for treatment of self or dependent family members, subject to prescribed conditions.
The deduction amount is the lower of:
- Actual expenditure incurred; or
- Rs 40,000.
For senior citizens, the maximum deduction limit increases to Rs 1 lakh. Any reimbursement received from an insurer or employer must be reduced from the deduction amount.
Why These Deductions Matter
Life insurance and health insurance not only provide financial security but also offer significant tax savings opportunities. Taxpayers who properly plan their investments, insurance coverage, and eligible medical expenses can reduce their taxable income while strengthening their financial protection.
The Income Tax Department's guidance serves as a useful reminder for taxpayers to review their insurance and medical expenditure planning before filing returns under the Income-tax Act, 2025.
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