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Tax Benefits on ULIPs

Aug 20, 2018 | 2 years ago | Read Time: 2 minutes | By iKnowledge Team

Can ULIPs Give You Tax Benefits? - Aegon Life Blog

A sizeable majority believes that insurance is an investment. But, there is a difference. When you insure, you are protecting yourself against risk and when you invest, you do that for future wealth. Subtle, but a difference nonetheless.

Unit-linked investment plans take a leap over this subtlety. They combine life cover and investment.

ULIPs bifurcate a part of the premium towards the financial safety of your loved ones. The remaining part is invested in the funds you choose. But, did you know that ULIPs provide tax exemption too?

So, read on to know what ULIP plans are all about and how they can help save taxes:

Features of ULIPs

  • It allows you to invest in equity and debt funds

ULIPs tend to offer investment options. You can choose to invest either in equity funds or debt funds or even both.

  • You can switch to a different fund

ULIPs give you the freedom to transfer your money from one fund to another. This can be beneficial if you have altered your financial goals and therefore want to move from one investment option to another.

  • They help you save taxes too

Thanks to Sections 80C and 10D of the Income Tax Act, there are tax benefits on ULIP. You can avail ULIP tax exemption of up to Rs. 1.5 lakh on your policy premiums. To make the most of these features, here are some pointers that you need to keep in mind.

  • Tax benefit at time of maturity

ULIPs help you plan your taxes well in advance. This is because ULIPs have a lock-in period of minimum five years. So, when you withdraw the money after maturity, the proceeds would not be taxed. This saves a significant amount of your money.

However, if you still wish to continue with the policy, ensure it is less than 20% of the fund value. Exceeding this would make you liable for taxation on ULIPs and other charges.

  • The benefit of ULIP premium

The premiums you pay are eligible for tax deductions. The benefits may be different for equity, debt and money market investments. However, as a rule, the upper limit on tax deduction is Rs 1.5 lakh.

  • Top-up your investments periodically

ULIPs offer tax benefits on top-ups too. If you have excess cash, you can invest it by using the top-up facility provided by ULIPs. You can avail tax benefits if the premium paid in this case is below 10% of the sum assured. This is possible through Sections 80C and 10D of the Income Tax Act.

To sum up, ULIP gives you three-in-one benefits. An insurance product at heart, ULIPs are one of the very rare instruments that help your wealth grow and save taxes at the same time.

Want to know your taxes? Access our easy to use tax calculator, and plan your finances.

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