LIC policies and tax
Two separate questions get mixed together here. The first is whether the premium you pay reduces your taxable income. The second is whether the money the policy pays out is taxable when it arrives. They have different answers, different conditions, and one can apply without the other.
Both also depend on things specific to you — which tax regime you are in, when the policy was issued, and how the premium compares to the sum assured. What follows is how the rules are structured, so you know what to check. It is not advice on your own position, and nothing here should be relied on for a filing decision without confirming it against the source.
The rules described on this page sit outside LIC's brochures, so they carry a date rather than a source document. Last checked . Tax rules change with each Finance Act, and your own position depends on facts specific to you — confirm anything you intend to act on against Income Tax Department — Acts and rules ↗.
The premium you pay
Life insurance premiums have long been eligible for deduction under section 80C, within an overall ceiling shared with everything else in that section — provident fund, PPF, ELSS, the principal on a home loan, children’s tuition fees. Most salaried people fill that ceiling from existing commitments before insurance is counted, so the marginal tax benefit of a new policy is often less than assumed.
The deduction is also restricted by the size of the premium relative to the cover. Where the annual premium exceeds a defined percentage of the sum assured, the deduction is limited to that percentage rather than the full premium. This is the rule that catches high-premium, low-cover savings policies.
And it only exists in the old tax regime. The concessional regime does not allow section 80C at all, so for anyone who has opted into it there is no premium deduction to weigh in the first place.
The money the policy pays out
Maturity and survival proceeds are dealt with under section 10(10D), which exempts them subject to conditions — principally the same premium-to-sum-assured test that governs the deduction. A policy that fails that test can pay out proceeds that are taxable.
A further condition was introduced for policies issued from April 2023 onward: where the aggregate annual premium across a person’s non-linked life policies exceeds a specified threshold, the maturity proceeds above it lose the exemption. This targets large policies bought primarily as tax-free savings rather than for cover.
The death benefit is treated differently and more simply. Proceeds paid on the death of the life assured are exempt, and the conditions above do not disturb that.
What to actually check for your own policy
The date the policy was issued, because which rule set applies turns on it. The annual premium as a percentage of the basic sum assured. Your total annual premium across all life policies, if any were issued from April 2023 onward. And which tax regime you are filing under.
Those four facts determine the answer. Your policy document states the first two; the plan pages on this site show the sum assured limits each plan permits, read from its brochure.
A caution worth stating plainly
Tax treatment is a reason to prefer one product over another at the margin. It is a poor reason to buy insurance you would not otherwise want. A policy bought in March to reduce a tax bill commits you to premiums for fifteen or twenty years, and the surrender value in the early years is well below what you paid in.
Decide whether you need the cover or the savings first. Treat the tax treatment as a tiebreaker, not a motive.
Work out your numbers
Each of these shows the formula it used and the assumptions it made, so you can check the result rather than trust it.
Lump sum projection
See what a single amount invested today could grow to at a chosen rate.
Open calculator →Monthly savings projection
See what a fixed monthly amount could grow to over time at a return rate you choose.
Open calculator →Inflation impact
See what today's money is likely to be worth in future, and what a cost today will grow to.
Open calculator →Common questions
- Is the LIC maturity amount taxable?
- It depends on the policy. Maturity proceeds are exempt under section 10(10D) subject to conditions — principally that the annual premium does not exceed a defined percentage of the sum assured, and, for policies issued from April 2023 onward, that your aggregate annual premium across non-linked policies stays within a specified threshold. A policy that fails a condition can have taxable proceeds. Check the issue date and the premium-to-sum-assured ratio on your own policy.
- Can I claim a deduction on LIC premiums under the new tax regime?
- No. Section 80C is not available under the concessional regime, so premiums paid give no deduction there. The deduction exists only for those filing under the old regime, and even then it shares a single ceiling with provident fund, PPF, ELSS, home loan principal and tuition fees.
- Is the death benefit paid to my nominee taxable?
- Proceeds paid on the death of the life assured are exempt, and the premium-to-sum-assured and aggregate-premium conditions that can affect maturity proceeds do not disturb that treatment.
- Does surrendering a policy create a tax liability?
- It can. Where a policy is surrendered before the qualifying period, deductions claimed on earlier premiums can be added back to income in the year of surrender, and the surrender proceeds themselves may not qualify for exemption. This is a specific enough situation that it is worth confirming against your own filing position before acting.
Go deeper
What do I get if I surrender my policy early?
Less than you paid in, in almost every case, especially in the first few years. Here is how surrender value is actually worked out.
Read the answer →What happens if I stop paying my premiums?
The answer depends almost entirely on how many years you have already paid. Stopping early and stopping late have very different consequences.
Read the answer →Still deciding?
You can work through all of this yourself — that is what the calculators and plan pages are for. If you would rather talk it through with someone who does this for a living, that is available too.