7 Things To Know About The Tax Benefits Of ULIPs


ULIP: What is it?

The investment and insurance mechanism known as a unit linked insurance plan, or ULIP, offers life insurance as a benefit for the life assured. ULIP tax benefits, which are available both during the policy term and at maturity, are one of the special features of ULIPs.

Many people prefer ULIP plans over other easily available investing options because of their flexibility. It is thought to be a dependable option for accomplishing long-term wealth growth goals. This combines returns, tax advantages, and insurance in this manner. By entering a few facts, you can use the ULIP calculator, a straightforward tool, to forecast the return you might receive at maturity.

Seven Important Things to Know About ULIP Tax Advantages

ULIPs are popular tax-saving strategies in addition to providing greater returns and shorter lock-in periods. Let’s take a look at seven aspects of ULIPs’ tax advantages:

1. Tax Savings on Paid Premiums for ULIPs

Policyholders may deduct up to Rs. 1, 50,000 in taxes from the insurance premiums they pay for ULIPs under Sections 10D and 80C of the Income Tax Act, 1961. To receive the tax reduction, keep your ULIP policy active for an additional five years.

2. Tax Advantages of ULIPs for Maturity

  • According to current laws, such as section 10 (10D) of the Income Tax Act of 1961, market-linked investment plans (ULIPs) offer tax-free maturity amounts.
  • If the plans are purchased between April 1, 2012, and February 1, 2021, the premium must be less than 10% of the sum assured in order to qualify for tax benefits at maturity.
  • If the yearly premium is less than 20% of the sum insured, the maturity amount for those who purchased plans before April 1, 2012, will be tax-free.
  • The total amount of premiums paid for plans purchased after February 1, 2021, must be less than Rs. 2.5 lakh to be eligible for tax benefits at maturity.
  • In the case of the life assured’s passing, the death benefit is also excluded from income tax deductions.
  • It should be noted that, per Government of India (GoI) regulations, ULIPs are no longer free from Long Term Capital Gains Taxes as of February 2021. (LTCG).

3. Death Benefit Withdrawals Are Tax-Free

The family of the policyholder is eligible to a sum insured amount besides the returns produced by ULIP plans in the terrible event of the policyholder’s passing away. As per Section 10(10D) of the Income Tax, the dividend is exempt.

4. Tax Advantages of Partial ULIP Plan Withdrawals

ULIPs provide for tax-free partial withdrawals. You are exempt from paying taxes on withdrawals made from ULIP plans after the lock-in period has been over for five years. The limitation is that the withdrawal amount will be at most 20% of the fund’s worth or amount.

5. Added-on deductions

Customers of ULIP are given the option to increase their investments by purchasing top-ups. The tax code’s Sections 80C and 10D provide income tax deductions for these top-ups.

6. Long-Term Tax Advantages

You can gain from ULIP tax benefits for a long-term investment. During the lock-in period, which lasts approximately five years, you benefit from the tax savings on your premiums for at least five consecutive years. If you maintain with your current strategy, you can continue to benefit from tax incentives for ULIPs.

7. Under just a single plan, ULIP offer investment, life insurance, and tax advantages.

Unit-linked insurance plans are highly advantageous compared to mutual funds, PPFs, and other standard insurance plans. Although it offers life insurance, it does not help in wealth creation. On the other side, mutual funds offer tremendous returns but no insurance. In contrast, ULIP aims to construct a bridge while also providing you with additional tax benefits.

The Fundamental Features and Benefits of ULIPs Offer Insurance and Investment Benefits

  • Fund Selection and Switching: ULIPs allow switching between equity and debt funds at any time during the policy period. For a fiscal year, a predetermined number of switches are allowed without being charged any additional fees. See the policy brochure and other documents if you want to learn more about whether your ULIP plan offers free switches.
  • Partial Retractions: The initial lock-in time for all ULIP plans is 5 years. A policyholder may select a limited number of withdrawals from the accruing amount after the lock-in period. There are no extra fees that you need to pay.
  • Transfer of Premiums: Every time you invest in ULIPs, you can choose which available fund options will receive your future premium payments. You must mention the policy number and the type of fund that you are directing your premium payments towards. You can also specify how much of the premium goes to each type of fund.

To calculate your expected sum assured, utilise the ULIP policy calculator.

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