Insurance Tax Benefits: New vs Old Regime

India''s optional new tax regime, introduced in 2020 and made the default from FY 2023-24, offers lower slab rates but strips away most deductions. For anyone who has carefully structured insurance premiums for both protection and tax saving, the switch decision deserves careful thought. Here is what you need to know before you choose your regime for the year.

What the New Regime Removes

Under the new tax regime (Section 115BAC), the following insurance-linked deductions are not available:

• Section 80C: no deduction for life insurance premiums, ELSS, PPF, or other eligible payments.
• Section 80D: no deduction for health insurance premiums paid for self, family, or parents.
• Section 80CCC and 80CCD: no deduction for annuity/pension policy contributions (other than the employer NPS contribution under 80CCD(2), which remains).

What Remains Under the New Regime

• Section 10(10D) exemption: maturity proceeds and death benefits that satisfy the existing conditions remain tax-free regardless of the regime you choose. The regime choice affects deductions on premiums paid, not the exemption on proceeds received.
• Employer NPS contribution: deduction under Section 80CCD(2) for employer contribution to NPS (up to 10% of basic salary) is available in the new regime.
• Standard deduction of ₹75,000 (from FY 2024-25) for salaried employees is available in the new regime.

The Break-Even Analysis

The decision hinges on whether your total deductions under the old regime exceed the tax saved by the lower slab rates in the new regime. At a gross income of around ₹7–10 lakh, individuals with substantial insurance premiums and home-loan deductions often find the old regime more beneficial. Above ₹15 lakh with a relatively clean deduction profile, the new regime''s rates may win out. A proper computation for your specific income and deduction mix is essential before deciding.

Impact on Your Insurance Buying Strategy

Choosing the new regime does not mean giving up on insurance. What it means is that insurance should be bought primarily for protection, not as a tax instrument. This is, in many ways, a healthier approach: a term plan offering adequate coverage makes more sense than an endowment plan bought mainly for the 80C benefit. Under the new regime, the return on endowment plans looks less attractive once the tax advantage disappears.

Regime Switching Flexibility

Salaried individuals can switch between regimes every financial year when filing their ITR. Individuals with business income can switch only once from old to new and back. This means salaried taxpayers retain full flexibility to revisit the decision annually as their income or deduction profile changes.

Conclusion

The new tax regime simplifies compliance but removes the deduction incentives that made insurance-buying financially rewarding beyond the protection benefit. Whether you stay in the old regime or switch, ensure your insurance portfolio is built on the right foundation — adequate term cover first, then health insurance, then savings or investment products. For a personalised comparison of both regimes given your actual premium commitments, a trusted advisor at TruePolicy can run the numbers with you.