ULIP Tax Benefits

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.

ULIP Tax Benefit

ULIP Tax Exemptions

You can enjoy ULIP tax benefits as exemptions 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 Tax Benefits

ULIP Tax Benefits

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 deretuduction 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

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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