All About Tax Benefits Available With Investment In ULIPS

An ULIP is a combination of investment opportunity and term life insurance. The dual benefits provided by ULIPs offers the policyholder an opportunity to achieve their life goals. A policyholder can get both market linked returns and financial security to your loved ones. Investors can decide among various ULIPs to allocate their hard-earned money and invest as per their risk appetite and investment avenues. Another perk of new-age ULIPs is that the policyholder is allowed to do multiple switches without any additional transaction costs, also there is no capital gains tax implication as well. 

The policyholder gets the benefit of wealth maximisation without any tax restrictions. ULIPs provide tax exemptions on premium paid by the policyholder and the payout of the maturity benefit.  The amount received on the maturity date by the life assured is exempted from tax as per section 10(10D) of the Income Tax Act.

1. Tax Implications on Maturity Benefit From An ULIP

When the policyholder invests in ULIP,  he is entitled to receive the fund value on the end of the policy term. The fund value is known as the value of your total investments made overtime that may have grown over the term of the policy. The total amount paid by the insurer at the end of the policy term is known as the maturity benefit. These maturity benefits are exempted from tax under Section 10(10D) of Income Tax Act 1961. However, the policyholder has to fulfil the following conditions to receive tax benefits- 
 

1. For ULIPs Purchased Before 1st April 2012 - If  the premium paid is higher than 20% of the sum assured value, the deduction is permissible on the amount i.e equal to 20% of the sum assured.
2. For ULIPs Purchased After 1st April 2012 - If the premium paid is higher than 10% of the sum assured amount, the deduction is permissible on the amount i.e equal to 10% of the sum assured.
3. If the premium paid is more than the specified limit then on maturity, income from the insurer must be added to the taxable income of the policyholder in the year of receipt of maturity proceeds. This amount is taxable at the applicable rate to the life assured. 

2. Tax Implications on Premium From An ULIP

According to the Section 80C of the Income Tax Act,  the premiums payments made by the policyholder can be claimed as a deduction from the taxable income. According to this section, investments up to INR 1.5 Lakh can be claimed as deductions, subject to the provisions stated therein.

1. ULIP policy Purchased Before 1st April 2012

A. If the annual premium is less than 20% of the sum assured, deductions can be availed for the premium amount paid.
B. If the annual premium is higher than 20% of the sum assured, deduction can be availed to an amount equivalent to the 20% of the sum assured.
 

2. ULIP policy Purchased After 1st April 2012
 

A. If the annual premium is less than 10% of the sum assured, deduction can be availed for the premium amount paid.
B. If the annual premium is higher than 10% of the sum assured, deduction is permissible to an amount equal to the 10% of the sum assured.