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Enjoy Various Tax Benefits by Investing in ULIPs

By Finserv MARKETS - Jul 25,2019
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Tax implications of Investment & Redemption of ULIPs

A Unit Linked Insurance Plan is a unique financial plan in the Indian market that offers dual benefits of insurance as well as investment. ULIPs offer an option to an investor to choose between debt or equity funds as a part of the investment. As a result, these plans enjoy an added edge over other investment options. This article gives detailed information about the different tax benefits implications and the respective redemptions gained under a ULIP scheme.

Tax benefits on Investments

The premium paid under ULIP plans fall under tax exemptions under section 80C (life insurance) and section 80 CCC (pension) of the Income Tax Act. Although there is no limit on the amount that you want to invest in a scheme, the tax deductions under 80C and 80CCC are limited to a maximum of Rs. 1,50,000.

1. Tax deductions on Premium Paid

Tax deductions on the premium are dependent on the sum assured value. A Sum assured is the total amount promised under the ULIP scheme to the nominee, in case of the demise of the policyholder during the policy term. Depending whether the policy is bought before or after 1ST April 2012, the tax implications on premiums differ as follows-

2. ULIPs purchased before April 1, 2012

Deductions under 80C are applicable when the premium is less than 20% of the sum assured. In case, the premium amount is more, you can enjoy tax deductions up to 20% of the sum assured value only.

3. ULIPs purchased after April 1, 2012

Deductions under 80C are applicable when the premium is less than 10% of the sum assured. In case the premium amount is more, you can enjoy tax deductions on amounts up to 10% of the sum assured value only.

Points to be noted

  • According to the Income Tax Act, any amount paid to keep a policy in force can be claimed under deductions. Therefore, at the time of filing for a claim, make sure you also include service charges as well as other added costs paid along with the premium.
  • In order to enjoy ULIP tax benefits, the premium must be paid regularly for a period of 5 years. In case, you decide to discontinue the policy before this lock-in period, you will not be eligible for tax deductions.

Tax benefit on Maturity

ULIP returns at the time of maturity are also covered under Section 10D of the Income Tax Act. If the premium paid during the term of your scheme is 10% for the sum assured, the returns received at the time of maturity are completely exempted from tax. For policies bought before 1st April 2012, the premium should be 20% of the sum assured value.

Note: If the premium paid is more than the prescribed percentage, the money received at the time of maturity must be filed under ‘Income from other sources’ while filing tax returns.

To enjoy tax benefits on your investments, apply for a Bajaj Allianz ULIP policy now! Browse through the various investment plans available on Finserv MARKETS, and choose a plan that best suits your financial goal. Unit linked insurance plans available on our platform offer benefits like choosing from a range of top-rated funds in the industry with zero allocation charges. So start investing in a ULIP plan today to avail all these financial benefits.

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

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Bajaj Finserv Direct Limited ("BFDL") is primarily engaged in distribution of financial products and services through its digital platform (“Bajaj Finserv MARKETS”) and inter alia renders services of customer acquisition, providing preliminary credit support activities, fulfilment services and post-acquisition customer services to Banks, NBFCs, HFCs. BFDL is also a registered Corporate Agent (Composite) under valid IRDAI registration number: CA0551 valid till 10-Apr-2024 for solicitation and servicing of Insurance Products. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522