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The LTCG Imposed on Mutual Funds Is a Game Changer for ULIPs

Sep 10, 2018 | 2 years ago | Read Time: 2 minutes | By iKnowledge Team


Change in the taxation structure of long term capital gains tax will lead to a change in the way Unit Linked Insurance Plans are viewed in comparison to mutual funds.

The Union Budget 2018 overhauled a lot of tax saving plans that we might have had in place for long. One such measure was the raising the long-term capital gains (LTCGs) from mutual funds. The Finance Minister, Arun Jaitley, in the budget speech proposed a 10% tax on long term capital gains. He further said that these taxes would not be liable to receive any type of indexation benefit.

Moreover, debt mutual funds held for more than three years qualify for this LCTG tax.  In fact, you can be charged as high as 20% tax albeit with indexation benefit. Capital gains tax (CGT) is charged on the gains in the financial year in which the capital asset is transferred, but the tax is only payable in the financial year in which the money from transfer/sale proceeds are actually received by the assessee.

Also note that the methodology for computing capital gains in certain specified cases has been changed with effect from the 1st of April, 2018 post the Budget.

Now couple this with the expected 6% predicted inflation rate. Gains you make on long term equity or mutual funds is reduced by the combined effect of rising prices and the LTCG tax.

What is the alternative?

There are a few alternatives to long term capital equities that give you a decent rate of return. If your question is ‘how to save tax in India, given the ever-increasing taxation structure’, then you might just have your answer.

Here you should turn to other tax savings options such as life insurance policies, a Unit Linked Insurance Plan (ULIP). Insurance tax benefits such as this must not be taken for granted as they can prove to be a viable alternative to mutual funds.

What is a ULIP?

ULIP is a life insurance product, which provides risk cover for you along with investment options to invest in any number of qualified investments such as stocks, bonds or mutual funds. As a single integrated plan, the investment part and the protection part can be managed according to your specific needs and choices.

In Unit Linked Insurance Plans (ULIP), the investments made are subject to risks associated with the capital markets. This investment risk in investment portfolio is borne by the policyholder. Thus, you should make your investment choice after considering your risk appetite and needs..

Advt. no.: II/Jul 2018/4278


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