One key ingredient of smart financial planning is understanding your tax liabilities and smartly planning to optimize it. While there are numerous options available in the market for saving taxes, here we talk about saving taxes through Unit Linked Insurance Plans, as they not only are a great investment tool, but also help in saving taxes in multiple ways:
- Deductible Premiums: If you are investing in ULIP plans, you are not only getting covered for insurance, but your money is also being invested made in debt, equity or bond instruments based on your choice. Subject to certain conditions, the premium paid towards a ULIP Policy is deductible under Section 80C of the income Tax Act up to a permissible limit of Rs. 1.5 Lakh per annum.
- Tax Free Withdrawals: Withdrawals from ULIPs can happen under three circumstances – Death of the policy holder, Maturity of the Policy and Partial Withdrawal by Policy Holder. Under any of these circumstances, the withdrawals from ULIPs are completely tax free. This is the major difference between a ULIP and a Mutual Fund, where in the latter the withdrawals are fully taxable.
- Top Up Investments: At any point in time, if your policy is performing well, you may want to top it up with additional funds. Even for top ups, the premiums are deductible under Section 80C and withdrawals are tax free. Top-ups in ULIP plans are hassle free and a great way of utilizing any extra money you have.