The introduction of Long Term Capital Gains (LTCG) Tax for equities has put ULIPs under the spotlight in the investment world. Since the Budget of 2018, investors who have equity funds in their portfolio for over a year will have to pay 10% tax on the fund’s returns. However, unit linked insurance plans have survived this tax even though they invest partly in equity funds. Hence, post the announcement of LTCG tax on equity investments such as equity mutual funds, ULIPs have emerged as one of the most advantageous investments in the market today.
ULIPs Tax Benefits
Avail ULIP tax benefits of up to Rs. 1.5 Lakh each year as deductions under Section 80C of the Income Tax Act, 1961. Among other mutual funds, only equity-linked saving schemes (ELSS) are eligible for benefits under section 80C. However, the LTCG Tax will eat into those returns as ELSS is equity based. Both the maturity benefit and the death benefit offered by unit linked insurance plans are completely tax-free under Section 10 (10 D) of the Income Tax Act, 1961. On the other hand, if you opt for mutual funds, the withdrawals you make before one year will be subject to short-term capital gains tax at 15 per cent, while withdrawals made after a year will be subject to the LTCG tax. In a nutshell, ULIP plans are one of the most tax-saving investment plans available in the market today.
Dual Benefits of Investment and Life Insurance
Unlike other investment plans, unit linked insurance plans benefits include a life insurance cover and market-linked investments. A portion of the premium is utilised for life insurance, while the other forms the investment corpus.
The revised ULIP guidelines introduced in 2010 brought down the charges significantly. Now unit linked insurance plans have negligible fund allocation and policy administration charges. Moreover, the Fund Management Charges are lower than Mutual Funds, 1.35% is only fund management charge, however, ULIPs have other charges too which cumulatively may come to approx. 2.5%. The national insurance regulator, Insurance Regulatory and Development Authority of India (IRDAI), mandates that the total effective charges should not go beyond 2.25%. Consequently, the total charges can never exceed what mutual funds charge. Such high charges can to eat into your returns and make your investments less profitable. Hence, in the long run, ULIP returns are likely to be higher than mutual funds.
If you are looking at better post-tax returns in equity schemes, then unit linked insurance plans investments are the most appropriate choice since they offer the equity advantage without the clause of LTCG tax on the maturity amount. Buy the best ULIP plans online with Finserv MARKETS today!
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