Tax savings over the years have become easier in many aspects. It doesn’t just reduce the tax liability but also helps the policyholder to save for the other goals that one has set at different stages of life. Aside from this, how well you will be able to accomplish both your short term and long term financial goals depends significantly on your tax saving. Experts seem to suggest that for effective tax planning, one has to begin their financial planning at the beginning of the year.

Amidst many options to save tax, ULIPs are considered to be the best tax-saving option as they come with the dual benefits of both investment and insurance. A part of your money goes towards your premium while the remaining amount towards your investment. Better returns, debt or equity switches, availing maturity benefits, protection and tax benefits; are some of the features that make ULIP one of the best tax-saving tools. In this article, we will list out a few reasons that show why ULIPs are one of the best tax savings options that are around us:

Helps you in goal-centric planning: ULIPs come with a minimum lock-in period of 5 years which helps the policyholders to do the goal-centric financial planning such as marriage, child’s education, purchasing the house, etc. With the help of Ulip return calculator, you will get a bird’s eye view of how the investments will grow. Due to the lock-in period, one can only make partial withdrawals only after the end of the lock-in period.

Top-up your investments: ULIPs also let you top-up extra cash. In other words, the top-up allows policyholders to invest extra money in the policy. The best part is these top-ups are also eligible for deduction as well as exemption under section 80C of the Income Tax Act.

Comes with Tax-Free withdrawals: ULIP provides significant tax benefits on withdrawals whether it is partial withdrawal, maturity of the policy, or death of the policyholder. Upon maturity, the policyholder receives an assured benefit that is exempt from taxation under Section 10D of the Income Tax Act, 1961.

Tax deduction on premium paid: In the case of ULIPs, the insured person will be entitled to a tax exemption under Section 80C of the Income Tax Act of 1961 on the amount of premium paid. This means that the premiums you pay for your ULIP are tax deductible, up to an upper limit of 1.5 lakh.

How does the tax benefit in ULIPs work?

Let us consider Rashmi’s example:

Rashmi purchased a ULIP to save for her daughter’s future education. The ULIP provides a total sum assured of ₹15 lakh with an annual premium of ₹1.8 lakh. Let us now look at the deduction that Rashmi might claim under Section 80C for this ULIP premium paid. According to tax laws, Rashmi can claim a deduction of the premium paid up to 10% of the total sum assured. Rashmi. She can also use the ULIP return calculator to get an accurate estimate of what it’s future value will be.

One can deduct up to ₹ 1.5 lakh in ULIP premiums from her taxable income, rather than the full ₹ 1.8 lakh, providing she is not claiming any additional deductions under Section 80C.

Now let us assume another scenario where Rashmi invested in a ULIP with a sum assured of ₹15 lakh and an annual premium of ₹1.5 lakh. In this situation, she will be able to claim a deduction for the entire premium under Section 80C, as long as she does not claim any other deductions under Section 80C.

Tax Benefits for ULIPs

The information provided below will help you understand the taxation structure for ULIPs (Unit-Linked Insurance Plans).

LTCG Exemption: Long-term capital gains (LTCG) tax is exempted on ULIPs with yearly premiums of up to 2.5 lacs.

Income Tax Benefits Under Section 80C: With a maximum exemption of Rs. 1.5 lakh under Section 80C, ULIP premiums are eligible for tax savings. Furthermore, maturity benefits from ULIPs are tax-free. To get these benefits, verify that the Sum Assured or Death Benefit is at least ten times the annual premium. If you don’t meet this criteria, your income tax advantages will be reduced to 10% of the sum assured.

Income Tax Benefits Under Section 10(10D): The maturity benefits of unit linked insurance plans are tax-free. Maturity benefits from ULIPs issued before February 1, 2021, are tax-free, regardless of the total premiums paid in any given year throughout the policy period.

So we are saying,

Claiming tax advantages on ULIPs is simple. Premiums and maturity proceeds are tax-free under Sections 80C and 10(10D), making ULIPs an appealing option for people seeking financial security with additional tax benefits. Overall, investing in ULIPs is a sensible move. As a hybrid product, ULIPs allow you to enjoy a variety of benefits such as tax savings, life insurance, and assured profits with no risk.