5 Things You Should Know About ULIP Tax Benefits
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The Unit Linked Insurance Plan (ULIP) is an investment and insurance package that provides the life guaranteed with both a life and an investment component. The tax-saving option, which may be adopted at any time throughout the policy's term and maturity, is one of the highlight characteristics of ULIPs. Customers prefer ULIPs over other investing alternatives because of their flexibility. It is regarded as a trustworthy method of reaching long-term wealth growth goals. This is because it combines returns, tax advantages, and insurance.
ULIP Tax Benefits: Everything You Need to Know
Due to greater returns and shorter lock-in periods, ULIPs are appealing tax-saving instruments. Let's look at seven things you should know about the tax benefits of ULIPs:
A Single Plan With Multiple Benefits
Unit-linked insurance plans outperform traditional insurance plans, PPFs, and mutual funds. Life insurance protects you in the event of your death, but it does nothing to assist you in building wealth. On the other hand, mutual funds provide high returns but no insurance coverage. ULIPs, on the other hand, act as a bridge and provide additional tax benefits.
Deductions for additional expenses
ULIP offers top-ups, which may be utilized to increase one's investment. These Top-ups are also eligible for income tax deductions under Sections 80C and 10D.
Long-Term Tax Savings
ULIP tax incentives are available for long-term investments. You gain for at least five years by avoiding paying tax on your premiums because of the lock-in period, which is roughly five years. You can gain even more tax savings if you retain your ULIP coverage.
Partial Withdrawals – Tax Benefit
Partial payouts are tax-free in the case of ULIPs. After the 5-year lock-in period, you are not required to pay income on ULIP payouts. The condition is that the withdrawal amount does not exceed 20% of the entire value or quantity of the money.
In The Event Of Death, Withdrawals Are Tax-Free
In the case of the policyholder's untimely death, the policyholder's family is entitled to a sum insured amount as well as the profits produced by ULIPs. The payment is free from income tax under IRS standards.
Maturity ULIP Tax Benefits
ULIPs are market-linked investment plans that give tax-free maturity amounts, according to current standards, such as section 10 (10D) of the Income Tax Act of 1961. To qualify for the tax advantages at maturity, the premium must be less than 10% of the total insured if the policies are acquired after April 1, 2012. The maturity amount for people who acquired insurance after April 1, 2012, will be tax-free if the yearly premium is less than 20% of the sum guaranteed. If you have a life insurance policy, the death payout is also tax-free.
Premiums Paid for ULIPs are Tax-Deductible
A member can deduct up to Rs.1,50,000 on the payment gateway amount of money paid towards ULIPs under sections 10D and 80C of the Income Tax Act, 1961. You'll be tax-free if you keep your ULIP coverage for another 5 years.
Take Away
ULIPs assist you in setting wealth-building goals for yourself and your family while also assuring their security and reaching those goals. With a range of fund alternatives to choose from and the opportunity to change funds based on your investing goals or market conditions, the programs are flexible. Get tax savings and tax-free withdrawals at the time of maturity or partial withdrawals.
Also read: The Benefits of a ULIP Plan
