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ULIP Tax Benefit

By Finserv MARKETS - Jan 30,2019
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Tax Benefit on ULIPs

Smart tax planning is the cornerstone of a sound financial plan. When it comes to tax savings, ULIPs are one of the best tax saving instruments available in the market today.

A Unit Linked Insurance Plan is a versatile long term wealth creation instrument that offers excellent long-term returns, Life Insurance cover and substantial tax savings. If you want to enjoy maximum tax benefits, investing in a ULIP plan is a prudent option.

But before we dive deep into the topic of ULIP tax benefits, let us understand what a ULIP plan is.

What is ULIP?

One of the best ways to save on taxes is to include a Unit Linked Insurance Plan (ULIP) in your financial portfolio. ULIP is an investment plan that offers dual benefits of capital appreciation and financial protection. You can reap returns from market-linked investments as well as reduce your tax liability with this investment instrument. If planned in the right way, ULIPs can help you to save up to Rs. 1.5 Lakh in taxes.  

ULIP combines life insurance and investment plans. A part of the money is used to offer you a life insurance cover while the other half allows you to reap benefits from investments made in equity and/or debt funds.

The best part about ULIP is that you get to choose which asset class you want to invest in. Based on your risk appetite and investment objectives. Briefly, ULIP is just like a mutual fund with an additional advantage of life insurance cover. You can read an in-depth explanation on what is ULIP in our Insurance section.

ULIP Tax Benefit
Section 80CYou can enjoy ULIP tax benefits under a multitude of sections under the Income Tax Act. It includes:-

  1. Section 80CCC
  2. Section 10(10D)
  3. Section 10(10A)
  • ULIP Tax benefits under Section 80C

With a ULIP plan, you can enjoy tax deductions up to a maximum of Rs 1,50,000 under the section 80C of the Income Tax Act. However, the total premium paid should be less than 10% of the sum assured. For e.g., If the sum assured for your ULIP is Rs. 15 Lakhs and the premium paid is less than Rs. 1.5 Lakhs, then the entire amount can be claimed as a deduction under section 80C. On the other hand, if your premium is more than 10%, say Rs. 2 Lakhs for a sum assured of Rs. 15 Lakhs, then your tax deduction will be capped at 10%, i.e. Rs. 1.5 Lakhs.

  • ULIP Tax benefits under Section 80CCC

If you have invested in a ULIP retirement/pension plan, the amount invested can be claimed under the section 80CCC up to a limit of Rs. 1,50,000. The overall limit for deduction under both section 80C and 80CCC is Rs. 1,50,000. Although you can invest a higher amount, the deduction will be limited to Rs 1,50,000 for a given financial year.

  • ULIP Tax benefits Under Section 10(10D)

The amount received on partial withdrawal or maturity of Life Insurance ULIP policy is exempt from tax under Section 10(10D) of the Income Tax Act. However, the premium payable should not be more than 10% of the sum assured. If you have purchased your policy before 1st April 2012, the premium should not exceed 20% of the sum assured for the proceeds to be tax-free.

If your policy is unable to fulfil the prescribed limit anytime during the policy tenure, the future proceeds of the policy are liable to be taxed. This is not valid in case of death. The amount will be taxed at the income tax slab rate applicable to you.

  • ULIP Tax benefit Under Section 10(10A)

If you have chosen a retirement/pension UILP plan, you can enjoy tax-free commutation of pension under Section 10(10A) of the Income Tax Act. However, the amount received on surrender of the policy and the pension received will be taxable.

To enjoy ULIP tax benefits to the fullest, always remember to pay the premium regularly. If you discontinue the ULIP payments before two years, you will not be eligible for tax benefits under section 80C.

ULIPs are EEE

As a matter of fact, ULIP falls under EEE establishment as a tax-saving investment. Generally, the EEE establishment is applicable on long-term investment only, and ULIP being on a popular demand in the market, it is important to understand the tax benefits offered under it. Thus, to help with the same, following are ULIP tax benefits at different stages during the policy term.

Tax Benefits on Premiums
  • The premiums paid towards ULIP plans are exempted from tax under Section 80C of the Income Tax Act, 1961. The sanctioned amount is INR 1.5 Lakh.
  • However, your annual premium should be less than or equal to 10% of the sum assured amount.
  • For instance, if the sum assured amount is INR 50 lakhs, then the annual premium paid should be more than INR 1.5 lakh to avail the said tax benefits.
Tax Benefits on Maturity
  • ULIP also offers tax exemptions on maturity benefits under Section 10(10D).
  • Just like we mentioned previously, your annual premiums should be less than or equal to 10% of the sum assured amount (for plans purchased before April 1, 2012).
  • For policies purchased after April 1, 2012 – the annual premium should be less than 20% of the sum assured amount.
  • Moreover, you can also avail death benefit in case of your (the policyholder’s) death.
LTCG Advantage
  • Apart from the benefits mentioned above, ULIP also exempts tax on Long Term Capital Gain (LTCG). This was implemented in the Union Budget 2018.

Tax free income is what makes ULIP an attractive long term investment. Being exempt from taxes, ULIP is a lucrative tool that is a must have in your financial portfolio.

ULIP Plans and their Eligibility Criteria

The eligibility criteria for ULIP Plans offered by Finserv MARKETS are as below:

  • Investment amount should be equal to or more than Rs. 2,500 (for monthly investments
  • Investment amount should be equal to or more than Rs. 6,500 (for quarterly investments)
  • Investment amount should be equal to or more than Rs. 12,500 (for half-yearly investments)
  • Investment amount should be equal to or more than Rs. 25,000 (for yearly investments)
  • The age of the policyholder has to be between 18 to 60 years

Essential Documents required for ULIP Plans

  • Proof of income – Pay slips, income tax returns, and bank statement
  • Proof of address – Driving license, Voter’s ID card, Aadhar Card, or Passport
  • Proof of identity – Aadhar card, PAN card, or Voting ID card
  • Proof of age – Aadhar card, Voting ID card, Passport, or Driving license

The Bottom Line

Not just tax benefits, high ulip returns is another reason why you should consider investing in such a plan. If you don’t have a ULIP plan yet, you can opt for one with Finserv MARKETS. 

The ULIP plan available in our Insurance section allows you build your wealth over time, offers dual benefits – investment as well insurance coverage, tax benefits, protection to you and your loved ones, and so much more.

So, why wait? Choose from a wide range of ULIP plans available on our platform, today!

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Finserv MARKETS, a subsidiary of Bajaj Finserv, is a one-stop digital marketplace that has been created for consumers on the go. It offers 500+ financial and lifestyle products, all at one place. At Finserv MARKETS, we understand that every individual is different. And that’s why we have invested in creating a proposition – Offers You Value. A value proposition that ensures you get offers which are tailor-made for you. We also offer an amazing product range and unique set of online offers across Loans, Insurance, Investment, Payments and an exclusive EMI store. Be it in helping you achieve your financial life goals or offering you the latest gadgets, we strive to offer what you are looking for. From simple and fast loan application processes to seamless and hassle-free claim-settlements, from no cost EMIs to 4 hours product delivery, we works towards fulfilling all your personal and financial needs. What’s more! Now enjoy the same benefits in just one click with our Finserv MARKETS App.

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Bajaj Finserv Direct Limited ("BFDL"), erstwhile Bajaj Financial Holdings Limited is a registered corporate agent of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited under the IRDAI composite registration number CA0551 valid till 10-Apr-2021. BFDL also renders services to Bajaj Finance Limited (‘BFL’) and Bajaj Housing Finance Limited (‘BHFL’) (referred hereinafter as ‘Lending Partner’) in sourcing of customers, providing preliminary credit support activities, fulfilment services and post-acquisition customer services related to lending business. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522