Tax planning is one of the main elements of an effective financial strategy. It is all about designing your finances in such a way that your tax liability is limited. It is imperative to include a financial plan in your strategy that allows you to take maximum advantage of the tax rebates and deductions, as specified by the Income Tax Act. 


What is a ULIP and how does it act as a tax-saving instrument?

One of the best ways to save on taxes is to include a Unit-Linked Insurance Plan (ULIP) in your financial plan. 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 one financial plan. 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.


Specifications of tax benefits under Section 80C and 80CCC with illustrations

The amount invested in ULIPs is eligible for tax deductions just like various life insurance schemes. Any amount that is paid to keep the life insurance active can be claimed as a deduction under tax. This also includes the various additional costs associated with the premium amount such as processing fees, service tax, and commission.  The deductions can be claimed under Section 80 C and Section 80 CCC. The amount of premium for life insurance is claimed under section 80C, while that towards the pension scheme is claimed towards Section 80CCC.

The maximum deduction that can be claimed under Section 80C and Section 80 CCC, of the Income Tax Act, 1961, is Rs. 1.5 Lakh, even if the amount invested by you is higher than this.

1.    One of the main conditions for this is that the annual premium paid by the policyholder should be less than 10% of the sum assured under the ULIP plan.

Let us take an illustration to understand this better. Suppose the sum assured is Rs. 18 Lakh and the yearly premium is Rs. 1.4 Lakh, which is less than 10% of the sum assured. In this case, you can avail the entire premium amount as a deduction. On the other hand, if the premium for the same policy is Rs 2 Lakh, the maximum amount that can be availed as a deduction will be Rs 1.5 Lakh.

2.    In case you discontinue paying the premium for your plan within two years, you will not be able to apply for tax deductions. In order to get tax benefits your ULIP plan must be active for at least two years. Hence, it is advisable to always invest in the ULIPs over a long-term horizon. 


Eligibility criteria for investments in ULIPs with Finserv Markets?

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


The documents required for ULIP application with Finserv Markets

  • 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

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