Life insurance taxation: it depends, specifically

The two sections that matter most

Section 80C allows a deduction for premiums paid, subject to an overall combined 80C limit shared with several other instruments (PPF, ELSS, EPF and more) — and only if the premium doesn't exceed a specified percentage of the sum assured, which itself varies by when the policy was issued and, for certain buyers, whether it's a standard or a disability-linked policy.

Section 10(10D) governs whether the maturity or death proceeds themselves are tax-exempt. Broadly, death benefits are exempt regardless of premium size. Maturity/survival benefits, however, have had tightening conditions layered on over the years — including caps on annual premium for policies issued after certain dates, and separate treatment for ULIPs above specified premium thresholds. The exact rule depends on the year the policy was issued and current law at the time of payout.

Annuity income

Annuity/pension income received is generally taxable as income in the year received, under the applicable income tax slab — it is not treated the same way as a lump-sum maturity benefit.

What to actually do about this

• Don't treat "tax-free" as the primary reason to buy any specific policy — treat it as one factor, verified against current rules at the time you buy and, again, at the time you receive proceeds.
• Check the premium-to-sum-assured ratio on the specific policy you're considering, since that ratio is often what determines eligibility for exemption, not just the product category.
• For anything with meaningful money involved, verify current thresholds with a tax professional or the current Income Tax Act text — rules referenced anywhere on the internet, including here, can be superseded by a later Finance Act.