Restructuring of the income tax system by the Indian government now has taxpayers rethinking their financial approaches. There is a lot of interest in examining life insurance, mainly during tax seasons, when people buy it for tax savings. It’s important to realise the impact the new Income Tax Act 2025 has on your current and future life insurance plans, especially when evaluating income tax as per the new regime vs the older provisions.
Overview
Before examining the effect of the new tax regime slabs on life insurance policies, it is important to appreciate the differences between the new tax slab and the older system. The table below illustrates how deductions and exemptions have changed and can assist you in evaluating your financial approach as per the new tax regime:
| Aspect | Old Tax Regime | New Tax Regime (Post-2025) |
|---|
| Tax Deductions on Premiums | Available under Section 80C (up to ₹1.5L) | Not available |
| Tax Exemption on Maturity Amount | Under Section 10(10D), subject to conditions | Limited conditions tightened |
| Standard Deduction | ₹50,000 | ₹75,000 |
| Tax Rates | Higher rates with deductions | Lower rates without deductions |
| Applicability | Optional | Default from FY 2025-26 (new income tax act 2025) |
Also Read: Navigating Income Tax Refund Denials In India
Evaluating Life Insurance In The New Tax Landscape
Since premiums for life insurance were deductible under Section 80C in the current tax slab old regime, they became popular among those looking to save their taxes. By removing the deductions, the new income tax slab causes people to revisit their policy benefits and reassess long-term coverage under the new regime tax slab.
Key Considerations:
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Purpose of the Policy: Distinguish whether the policy was taken out mainly to save taxes or to protect your finances.
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Policy Maturity: When a policy is about to mature after 3-4 years, try to continue without surrendering to prevent losing money.
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Coverage Adequacy: Under traditional policies, coverage is often afforded at just 10 times your annual premium, which won't be enough for full protection.
Implications For Policyholders:
A change in tax rules means you should review your current life insurance policies in depth. It’s crucial to see how your financial plan aligns with the new income tax act 2025 and decide whether your policy fits within the income tax new and old regime system.
Potential Actions:
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Keep the policy: If the long-term objective is to save money, not just on taxes, then the policy may continue to have value.
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Surrender the policy: If the policy is primarily for tax benefits, then it may be possible to surrender the policy. Just check for any penalty terms and assess if any benefits are foregone.
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Transfer the policy: Some insurance companies allow their customers to switch their regular policies to those that are more aligned with current financial needs.
Also Read: Guide To Filing Taxes In May 2025: Follow The Deadline, Dues, Penalties & More
Strategic Financial Planning
Given the new tax regime, individuals should look at other financial products that align with their financial objectives and that offer higher returns or protections.
Options That Should Be Considered:
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Term Insurance: If the long-term objective is savings and protection, not just tax benefits, the policy may still be valuable as per the new tax regime.
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Public Provident Fund (PPF): If the policy was mainly for deductions under the current tax slab old regime, you may consider surrendering, but assess penalties and benefits carefully.
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Equity-Linked Savings Scheme (ELSS): Some insurers allow a switch to policies better aligned with the new regime tax slab provisions and future planning.
Conclusion:
The new Income Tax Act of 2025 signals a major shift in how personal finance must be approached. Life insurance is no longer a one-size-fits-all tax-saving instrument. The emphasis is now on selecting plans that serve actual financial needs rather than fitting into new income tax slab incentives. Whether you're sticking to the current tax slab old regime or adapting to the new regime tax slab, your strategy should be future-ready and aligned with real objectives.
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