Do ULIPs Have Any Tax Advantages?

ULIPs (United Linked Insurance Plans) are one of the most tax-efficient investment vehicles currently available. It may help you build money as well as provide life insurance for your family. It's uncommon to come across an investing program that provides all of the benefits of a ULIP. Unit Linked Insurance Plans (ULIPs) are safe investment choices that allow you to retain your money in a secure location. It's a strategy for building money over time. The best approach to maximize ULIP returns is to stay consistent and rotate across funds. Saving and investing are the only two options for securing your future.

Are There Any Tax Advantages To ULIPs?

Continue reading to discover more about ULIPs and how they may help you save money on taxes.

• Tax-Free premiums

When acquiring ULIP coverage, you must pay premiums to the insurer. A ULIP Return Calculator can help you figure out how much money you'll gain on your investment and how many premiums you'll have to pay. Your premium will be invested in numerous channels, and the assurer will build a life insurance policy for you. ULIPs, on the other hand, allow you to deduct the premium amount you pay under Section 80C of the Income Tax Act. Tax reduction of up to Rs. 1.5 lakhs is available.

• The Benefits of Maturity Aren't Taxable

The maturity value of your ULIP is also tax-deductible under the ULIP. This benefit is limited in India to a small number of financial possibilities. Section 10(10D) of the Income Tax Act exempts you from paying tax on the capital you receive after the insurance is concluded. To qualify for the tax exemption, the premium amount must be less than 10% of the ULIP's total guaranteed.

• There are no Taxes on Death Benefits

The beneficiary will get a death benefit as well as income earned by ULIP funds in the case of the policyholder's death. This lump-sum assured death payout is tax-free under Section 10(10D) of the Income Tax Act. It implies that in your absence, the beneficiary will receive the whole payment, helping them to deal with financial challenges.

• Withdrawals are not Subject to Taxation

After a 5-year lock-in period, you can make partial withdrawals from ULIPs. These are tax-free withdrawals. Keep in mind, however, that this option is only available for partial withdrawals, and the total amount withdrawn from the fund cannot exceed 20% of its total value.

• Top-Ups Are Exempt From Taxes

You can increase your ULIP returns by purchasing additional top-ups with your current insurance. The insurance provider will allow you to acquire top-ups if you have surplus money to invest in the funds. Sections 80C and 10(10D) of the Income Tax Act allow for tax exemptions on top-ups.

• Capital Gains Tax Savings

If you make more than Rs. 1 lakh from shares, equity Linked Savings Schemes (ELSS), or equity-based mutual funds, you are likely to pay Long Term Capital Gains (LTCG) tax. ULIP funds, on the other hand, make tax-free profits. ULIPs have an edge over other forms of investments because of this.

Take Away

You can benefit from bigger tax exemptions and save more money if you invest in ULIPs for the long term. Maintaining a ULIP is a smart long-term investment because premiums are tax-free. You can make a lot of money by investing in a tax-advantaged ULIP. When completing your income tax returns, keep in mind the tax exemptions to maximize your savings.

Also read- With ULIPs, how do you stay protected and invested?

Understand ULIP Partial Withdrawals