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Impact of New LTCG tax on ULIPs

By Finserv MARKETS - Jan 30,2019
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Impact of new LTCG tax on ULIPs

The recent introduction of the Long Term Capital Gains Tax commonly known as LTCG, has left many mutual fund investors confused regarding the implications of this tax on their financial investments and additional tax liabilities.

It has also given a new lease of life to the age-old debate – Are ULIPs better than mutual funds?

So, what really changed?

The 2018 budget re-introduced the LTCG tax on equity funds for gains over Rs. 1 Lakh. The capital gains will be taxed at a flat rate of 10%.

A few important points to note here are:

  • Long term capital gains are applicable on equity mutual funds only if your investment exceeds a period of 1 year.
  • The taxation is not on the overall ulip returns from the fund, but only on the long-term gains.
  • The tax only kicks in if your gain is over Rs. 1 Lakh. There is no indexation benefit provided.

How does this impact ULIPs?

Simply put – it does not! Rather, ULIP plans in India are now an even more attractive investment opportunity for investors looking for tax-free benefits.

Let’s take a look at this:

  • Mutual funds held for less than a year, are already being taxed at 15%. ULIPs, on the other hand, are insurance products that have zero tax liability for short term gains.
  • Mutual funds held for more than a year now have the LTCG tax of 10% on gains over Rs. 1 Lakh. ULIPs are tax free with respect to long term gains as well.
  • Debt/Balanced – All ULIP plans offer their investors the option to invest in debt or liquid funds. While long term gains from debt funds are taxed at 20% (after indexation) and fixed deposits are taxed as per prevailing rates, any long-term capital gains from ULIPs are non-taxable.

In short – Any gains made from ULIPs, short term or long term, are tax free!

What else should you know about ULIPs?

We have broken down some useful parameters that will help you evaluate the pros and cons of ULIP plans in India.

  • Cost:

ULIPs have received a lot of flak in the past with respect to high charges. Today their high-flying costs are simply a myth, with most online ULIPs having zero administrative or fund allocation charges.

  • Security:

When you choose to go with some of India’s best ULIP plans, what you get in return is a strong investment portfolio with a long term outlook combined with a life insurance policy that keeps you and your family protected against any unforeseen circumstances

  • Options:

Like mutual funds, ULIPs allow you to choose between a mix of debt and equity-based investments. This is completely dependent on your priorities and risk appetite. Depending on your long-term outlook and upcoming priorities, you decide what works best for you.

  • Transparency:

Among the biggest advantages that mutual funds had over ULIPs were their clear processing and management system that can be tracked by various organizations. However, some of the best ULIP funds today are putting transparency right atop their list of must-haves, thereby, providing detailed documentation on how their funds will be utilized.

Unit Linked Insurance Plan can provide you with immediate and continuing ULIP tax benefits, with zero impact due to the recent LTCG tax. They are now a viable alternative for those looking at a long-term horizon for investing, along with a life cover for their family!

Now that you know about the impact of LTCG as well as other information about ULIPs in India, we strongly recommend that you buy yourself a ULIP today! With Finserv MARKETS, buying ULIPs is easy, convenient, hassle-free and comes with a host of other benefits. Click here to know more!

To know more on ULIP investments in depth, you can check out these blogs:

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