7 Things to Know About the Tax Benefits of ULIPs
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If you're seeking an investing and insurance plan, a ULIP is the ideal tool. The adaptability and financial stability it offers are the main advantages of ULIP. Additionally, investments in ULIPs can offer substantial returns to support policyholders in reaching their financial objectives. While a component of the payment is used to pay for the insured's family's health insurance, the remaining 50% is invested in market-linked assets of the insured's choice, such as stock, debt, etc.
In India, ULIPs are a well-liked investment choice since they let users pay premiums without being taxed. They are helpful for financial planning as well. ULIPs help you manage your money so that you may accomplish your goals of accumulating wealth in addition to providing coverage. With the help of these programmes, you may invest in a mix of debt and equity funds that yields great returns. Read this article to know more about the tax benefits of ULIPS.
What Does ULIP Mean Exactly?
One of the unique features of the Unit Linked Insurance Strategy (ULIP), which is available both during the policy term and at maturity, is the tax savings advantage. Due to their flexibility, customers prefer ULIP plans over other easily available investing options. It is recognised as a trustworthy long-term approach for reaching goals related to wealth creation. This is because it combines earnings, tax benefits, and insurance.
Things To Know About Tax Benefits Of ULIPs
Following are the listed tax benefits of ULIPs -
- Premium - The single largest advantage of purchasing a ULIP insurance is that, under section 80C of the Income Tax Act of 1961 and subject to its limitations, the whole premium you pay may be deducted from your taxable income up to a maximum of Rs 1.5 lakh. The life insurance amount must be at least ten times the annual premium.
- Maturity - When you made your investment in the ULIP, you were able to save some tax. The good news is that ULIPs give tax-free maturity amounts according to Section 10 (10D) of the Income Tax Act 1961, provided to the limitations indicated therein, so long because all due premiums are reimbursed by the date of maturity. According to the most recent Finance Bill, the maturity profits from this type of insurance would've been treated as a capital asset. For plans with yearly premiums totaling less than Rs. 2.5 lakhs, however, such tax exempt status under Section 10(10D) will remain in effect subject to the restrictions thereof.
- Partial Withdrawals - If you want to take money out of your ULIP plan just after five-year lock-in term, you can do so without paying taxes as long as the amount is below or equal to 20% of the fund value.
- Tax-Free Payouts - According to the provisions and conditions of the contract, in the event that the policyholder passes away, the deceased's nominees will be awarded the whole amount of the sum guaranteed or the full market value of the investment into which the insurer had deposited, whichever is larger. At least the family does not need to be concerned about their life objectives being impeded by the lump sum payment or payment in installments while they cope with the loss of a loved one. Aside from Keyman Policies, the whole payout in the case of the policyholder's death is likewise free from taxation.
- Top-Up Deductions - The flexibility that ULIP plans provide is another benefit. For instance, ULIPs enable investors to enhance their investment by purchasing reinvestments on a regular basis. This will enable you to add more units to your ULIP investment anytime you have extra cash on hand or need to make a last-minute investment to reduce your tax liability. Income tax deductions are also available for these top-ups.
Endnotes
One may think about using ULIPs in their investment portfolio due to the variety of advantages they provide, which will help an individual balance their insurance and investing demands. The icing on the cake are the additional tax advantages for both the investment and the maturity.
Also read: When And Who Should Buy A ULIP?
Understand Why You Should Buy a Unit Linked Insurance Plan (ULIP)
