Premium paid is the starting figure, not the deduction
For tax year 2026–27, first confirm that the individual or HUF can claim section 123 outside the default section 202 regime. Then test each life-insurance premium against the insured-person condition and the policy-specific percentage of actual capital sum assured. Finally apply the shared ₹1,50,000 section 123 ceiling. Paying more than the percentage limit does not, by itself, make the entire premium ineligible: the eligible portion is capped.
The current statute and the policy issue date
This analysis uses the Income-tax Act, 2025, as amended by Finance Act, 2026, effective from 1 April 2026. Section 123 and Schedule XV now provide the relevant framework corresponding to the familiar legacy section 80C claim. Section 202(2)(a)(xii) excludes this deduction under the default regime; a valid option outside that regime is essential. This article calculates the deduction, not the tax saving or the separate taxation of policy proceeds.
| Policy condition | Premium ceiling | File evidence |
|---|---|---|
| Issued on or before 31 March 2012 | 20% of actual capital sum assured | Original issue schedule |
| Issued on or after 1 April 2012, ordinary case | 10% of actual capital sum assured | Issue date and minimum assured amount |
| Issued on or after 1 April 2013, specified disability or disease case | 15% of actual capital sum assured | Evidence that the insured satisfies section 154 or prescribed section 128 condition |
Schedule XV paragraph 1(a) covers an individual’s own life, spouse and any child; for an HUF it covers a member. Paragraph 2 defines actual capital sum assured using the minimum insured-event amount during the policy term, excluding agreed premium returns and bonuses or other benefits above the amount actually assured. Its percentage restriction excludes deferred-annuity contracts; do not force those contracts into this life-policy calculation.
Build the claim policy by policy
Use a worksheet with payer, insured person, issue date, amount actually paid in the tax year, qualifying assured amount and applicable percentage. Compute the smaller of payment and the policy ceiling. Only after doing this for all eligible policies should the preparer combine other qualifying section 123 payments. A policy renewal in 2026 does not make its original 2011 issue date a 2026 issue date. An insurer’s tax certificate helps identify the facts; it cannot enlarge the statutory limit.
The practical control is a reconciliation between receipts, bank debits and the policy schedule. Where a product offers a changing death benefit, obtain the contractual minimum rather than selecting the most favourable projected benefit. Record why a special 15% case qualifies; age or an ordinary illness alone is not the statutory test. Use the current prescribed disease conditions when that limb is relied upon.
Exceptions and mistakes that change the answer
An individual’s payment for a parent’s life policy is outside the relationships listed in paragraph 1(a), even if the parent is dependent. Conversely, the word “child” is not expressed there as a dependency test. Avoid confusing a premium deduction with exemption of maturity proceeds: those receipts require a separate Schedule II analysis. Schedule XV paragraph 4 also has a clawback where an ordinary life policy terminates before premiums have been paid for two years, or a single-premium policy terminates within two years after commencement, subject to the precise termination/non-revival conditions. Reconcile earlier deductions if that event occurs; do not simply claim the last payment again.
Worked illustrations
These illustrations use fictional facts and expressly stated assumptions. Amounts are Indian rupees unless a different currency or unit is specified. They are independent examples, not findings about any actual client.
Illustrative example 1: A pre-April 2012 policy
An individual validly outside section 202 pays ₹72,000 in 2026–27 on an eligible policy issued on 15 March 2012. Actual capital sum assured is ₹4,00,000. The policy ceiling is ₹4,00,000 × 20% = ₹80,000; the eligible amount is min(₹72,000, ₹80,000) = ₹72,000. Assume no other section 123 payments.
Illustrative example 2: Only the excess is excluded
A policy issued on 20 April 2012 has actual capital sum assured of ₹5,00,000 and premium paid of ₹70,000. The ordinary ceiling is ₹50,000. The eligible premium is ₹50,000 and the excluded excess is ₹20,000. Do not reject all ₹70,000 merely because the payment-to-cover ratio exceeds 10%.
Illustrative example 3: The supported special-policy rate
An eligible policy issued on 1 May 2014 covers a person whose disability satisfies section 154. Premium paid is ₹95,000; actual capital sum assured is ₹6,00,000. The 15% ceiling is ₹90,000. Eligible premium is ₹90,000 and the excess is ₹5,000, before the aggregate section 123 ceiling.
Illustrative example 4: Projected benefits are not the base
For a post-2012 ordinary policy, the verified minimum insured-event amount, excluding agreed premium returns, is ₹4,00,000. A brochure also shows ₹1,00,000 of premium returns and ₹80,000 of projected bonus, totalling ₹5,80,000. Premium paid is ₹60,000. Use ₹4,00,000 × 10% = ₹40,000, not ₹58,000. The eligible premium is ₹40,000.
Illustrative example 5: The ceiling is shared across the claim
After separate policy tests, eligible premiums are ₹80,000 for self, ₹50,000 for spouse and ₹40,000 for a child: ₹1,70,000. Other independently qualifying section 123 payments are ₹30,000. The aggregate is ₹2,00,000, but the deduction is ₹1,50,000, not ₹1,50,000 for insurance plus ₹30,000 separately. Assume adequate gross total income and no overlapping claim.
Illustrative example 6: Separate the insured relationships
An individual pays ₹40,000 for a parent’s life policy and ₹25,000 for a child’s eligible policy. Assume the child’s policy-specific limit exceeds ₹25,000 and the individual bears both payments. Of ₹65,000 paid, ₹25,000 qualifies under the life-premium limb; ₹40,000 does not. A separate parent health-insurance deduction is a different enquiry.
Illustrative example 7: A default-regime return
An otherwise eligible ordinary-policy premium is ₹1,00,000 and the policy ceiling is ₹1,20,000. The taxpayer remains within section 202 for 2026–27. Section 123 deduction is ₹0. The otherwise qualifying ₹1,00,000 is not a tax credit and cannot be inserted in the default-regime return merely because an insurer issued a certificate.
Ten-step verification table
| Step | Verification | Evidence to retain |
|---|---|---|
| 1 | Confirm tax year and governing Act | 2026–27 computation using the 2025 Act |
| 2 | Confirm the regime option | Return/option record appropriate to the taxpayer |
| 3 | Identify who paid | Receipts and bank debits |
| 4 | Match the insured relationship | Policyholder and family/HUF evidence |
| 5 | Record original policy issue date | Original schedule and endorsements |
| 6 | Verify actual capital sum assured | Minimum benefit calculation excluding returns and bonus |
| 7 | Support any special 15% condition | Applicable disability/disease evidence |
| 8 | Recompute each eligible premium | Payment-versus-percentage worksheet |
| 9 | Combine other section 123 payments | Shared-limit and overlap reconciliation |
| 10 | Check policy termination and final claim | Continuity evidence, prior claims and signed computation |
Sixteen practitioner FAQs
1. Does section 123 give a separate limit for each insurer?
No. Consolidate the policy worksheets before comparing the claim with the single aggregate ceiling.
2. Does renewing an old policy reset its issue date?
Use the original issue date supported by the contract. A renewal receipt alone is insufficient evidence of a new policy.
3. Should a premium exceeding the ratio limit be rejected in full?
Calculate the eligible portion first. Keep the excess in a separate non-qualifying column.
4. Can a bonus illustration increase actual capital sum assured?
Use the guaranteed insured-event terms and the statutory exclusions, rather than a sales projection.
5. How should a declining benefit be checked?
Obtain the benefit schedule for the full term and identify the relevant minimum; retain the calculation.
6. Does a spouse need independent taxable income?
The life-premium relationship rule does not impose that condition. Establish the claimant’s actual payment and the policy’s other requirements.
7. Are parents included because they are dependent?
Dependency does not add a parent to the life-premium relationship list. Review any different deduction separately.
8. Can an HUF claim a member’s policy premium?
Identify the member and establish the HUF’s payment and eligibility. Do not duplicate the same payment in a member’s personal claim.
9. Is the 15% rate available for every health condition?
No. The supporting file must establish the particular statutory disability or prescribed disease condition.
10. Is a deferred annuity calculated with the ordinary life-policy ratio?
It needs its own Schedule XV classification. Do not apply the paragraph 2 life-policy restriction indiscriminately.
11. Does a section 123 claim prove maturity proceeds are exempt?
No. Prepare a separate receipt analysis with issue date, product and applicable exemption conditions.
12. Can projected future premiums be deducted now?
This claim concerns amounts paid or deposited in the tax year. Reconcile the receipt dates rather than the future instalment schedule.
13. What if provident-fund payments have already used the ceiling?
The premium may qualify as a payment while adding no further deduction. Show that distinction in the computation.
14. What should a preparer do with an early surrender?
Obtain the commencement, premium-payment and termination history, then test the paragraph 4 clawback against earlier allowed deductions.
15. Does an insurer certificate override a default-regime restriction?
No. Preserve it as evidence of payment, while making the regime decision separately.
16. What figure should be described as the tax benefit?
The examples show deductions from income. Actual tax savings require a complete computation, including regime, applicable rates, rebate and other adjustments.
Conclusion
Finish with three reconciled figures: actual premiums paid, eligible premiums after individual policy tests, and the final shared-limit deduction. Retain the regime conclusion with that worksheet.