What Investors Ought To Know About ULIP Tax Benefits

One of the best tax-saving investing tools accessible to investors today is United Linked Insurance Plans (ULIPs). It provides money-building and life insurance protection as rewards and other ULIP benefits. Rarely do you come across an investment option that can offer all the advantages of a ULIP? The same 5-year lock-in period provides higher yields than tax-saving fixed deposits, NSC, and post office savings. The best aspect is that your maturity benefit is tax-free, and you can deduct your ULIP premium payments from your taxes.

View the typical returns that ULIPs with the same 5-year lock-in term typically offer. The returns are comparable to those from the National Pension Plan and Equity-Linked Savings Plans (ELSS). You can learn more about ULIP benefits before opting for the plan.

Here are returns on average for different Debt and equity instruments

Investment Instrument-  ULIP

Type-  Equity

Rate of Return (annual)- 10-12%

Guaranteed Returns- No

Lock-in period (min.)-  5 years

Investment Instrument- PPF

Type- Debt

Rate of Return (annual)- 7.8%

Guaranteed Returns- Yes

Lock-in period (min.)- 15 years

Investment Instrument-  NSC

Type-  Debt

Rate of Return (annual)-  7.8%

Guaranteed Returns- Yes

Lock-in period (min.)- 5 years

Investment Instrument- Post Office Deposits

Type- Debt

Rate of Return (annual)-  7.6%

Guaranteed Returns- Yes

Lock-in period (min.)-  5 years

Investment Instrument-  Tax-saving Fixed Deposits

Type-  Debt

Rate of Return (annual)-  6.25-6.75%

Guaranteed Returns-  Yes

Lock-in period (min.)- 5 years

Investment Instrument-  Sukanya Samriddhi

Type- Debt

Rate of Return (annual)- 8.3 %

Guaranteed Returns- Yes

Lock-in period (min.)- 21 years

Investment Instrument-   Senior Citizen Savings Scheme

Type- Debt

Rate of Return (annual)- 8.4%

Guaranteed Returns- Yes

Lock-in period (min.)- 5 years

Investment Instrument- NPS

Type-  Equity, Debt

Rate of Return (annual)-  12%

Guaranteed Returns- No

Lock-in period (min.)-  Till retirement

Investment Instrument- ELSS

Type-  Equity

Rate of Return (annual)- 10-12%

Guaranteed Returns- No

Lock-in period (min.)- 3 years

ULIPs are unquestionably a fantastic tax-saving tool in your arsenal, aside from having a short lock-in time and offering good returns. Let’s now examine some of the things you need to understand about the tax advantages of ULIPs.

Tax advantages associated with ULIP premium payments: As per the old tax regime, sections 80C and 10D of the Income Tax Act allow you to deduct up to Rs. 1.5 lakh from the policy premiums you pay for ULIP plans.. In the new tax regime, deductions are allowed on premium payments of up to Rs.2.5 lakh. To benefit from tax exemption and the benefits of a ULIP plan, keep your ULIP policy active for at least five years. Tax advantages for ULIPs at maturity: The only market-linked investment instrument that is tax-free even after maturity is a unit-linked insurance plan. As a result, you avoid paying taxes on both the premium and the maturity amount.

To qualify for tax exemption at maturity, the premium amount must be less than 10% of the amount insured. You can check the ULIP calculator to understand more clearly.

Tax-free withdrawals upon passing: In the event of the policyholder’s demise, the family can get the sum promised plus any profits made by the ULIP plan. According to income tax regulations, this payment is exempt. Tax-free partial withdrawals: Even partial withdrawals are tax-free in a unit-linked insurance plan. After the five-year lock-in period, you are not required to pay taxes on withdrawals from ULIP plans as long as the withdrawal amount is 20% of the fund value.

Top-up deductions: ULIPs allow investors to enhance their investments by purchasing recurring top-ups. Additionally, these top-ups qualify for income tax deductions under sections 80C and 10D. Protection from long-term capital gains tax: ULIPs are not subject to the long-term capital gains tax, whereas profits from shares, equity mutual funds, and ELSS beyond Rs. 1 lakh are.

Lengthy-term tax advantages: If you have a long investment horizon, ULIPs can provide you with long-term tax advantages. Since ULIPs have a 5-year lock-in term, you benefit from tax savings on insurance premiums that continue for at least five years. Over time, if you stick to your policy, you could accrue extra ULIP tax benefits.

Unit-linked insurance plans outperform traditional insurance, mutual funds, and PPFs. Although it may offer life coverage, life insurance doesn’t aid wealth accumulation. On the other hand, mutual funds give you a chance to earn significant returns and increase your wealth without any insurance protection. The advantage of a ULIP plan is that it fills in this gap while also providing you with more tax savings. Check out the ULIP tax benefits to know more.

With as little as Rs. 4,000 a month, you can increase your money and protect your family’s future. You can invest in six different types of funds, and you have the freedom to transfer between funds based on changes in the market or your investment objectives. Tax exemptions and tax-free withdrawals at maturity or partial withdrawals are available to you.

Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.