A unit-linked insurance plan is the best investment option for many factors. ULIP plans can effectively meet the needs of those who want to get life insurance and grow their money over time. In addition, the ULIP tax benefit makes it a great addition to your investment profile. Let’s learn more about the taxation of ULIPs and their other aspects.
Overview of ULIPs
A Unit-linked Insurance Plan is exceptional since it provides the policyholder with two advantages. A ULIP’s premium payments are split into portions for insurance and investments. The type of investment the policyholder decides to make with it is up to him. You can use a ULIP Calculator to estimate future returns and the value of a ULIP investment.
A specific amount of the premium is used to purchase life insurance for the insured person. The remaining half of the premium is invested in various debt and equity funds at the customer’s discretion. ULIP tax benefits are available for the policyholder to lessen their financial burden, just like all other life insurance policies.
Tax advantages of ULIPs
Any decision that includes spending your hard-earned money deserves careful consideration. Most people make financial plans to manage daily spending and fund future demands better. It is advised to accurately assess the necessary life cover to achieve personal goals before purchasing a ULIP.
The clause states that a life insurance policy can be written off for “any money paid to retain in force.” The additional elements paid to the insurer, such as service tax and other fees, may also be included in the ULIP tax advantage.
Currently, there are 2 tax regimes in India – new and old. To get the tax benefit you desire, choose the correct one after consulting an expert. You can opt for a regime change during the next financial year.
To better understand, let’s discuss a few important points about ULIP taxation.
- Section 80C of the Indian Income Tax Act (life insurance premiums are tax deductible) and Section 80CCC are the two main sections that apply to ULIP tax benefits (the amount paid towards pension plans is tax-exempt).
- These regulations state that an annual ULIP tax benefit of up to Rs. 1,50,000 is permitted under sections 80C and 80CCC. This means that even if you can invest more money, the total ULIP tax exemption is limited to Rs. 1,50,000 annually.
- Remember that the annual premium should not exceed 10% of the amount assured. So, the entire amount can be used to receive ULIP tax benefits if the chosen sum assured is Rs. 15 lacs and the yearly premium is less than Rs. 1.5 lacs.
- The available ULIP tax benefit is still Rs. 1.5 lacs, or 10% of Rs. 15 lacs, even if the yearly premium is greater, say Rs. 3 lacs for the same value assured of Rs. 15 lacs.
- To be eligible for the ULIP tax benefit, the plan must operate for at least five years. The ULIP tax benefits you received in the first four years will be lost if you cease paying premiums for the plan in the fifth year.
- Significantly, the authorities may amend the tax legislation to affect how taxable ULIPs are. The laws govern the ULIP tax advantage in effect at the time premiums are paid.
Advantages of investing in ULIPs
A ULIP can be used in a number of ways to help you meet your financial obligations throughout life. It is a preferred alternative because of the range of investing options. It is in your best interest as an investor to consider the taxability of ULIP plans as well as other advantages. Here are a few of them, with thorough explanations to assist you in making a decision:
- Life insurance
In times of need, the life coverage offered by ULIPs can protect your loved ones. With a ULIP, you may be confident that your family will be safeguarded even when you are not around. Because a ULIP not only insures the insured’s life but also increases the money over time, they won’t have to give up on their life goals.
- Flexible investing options
ULIPs are versatile investment instruments because they let the policyholder select the funds they want to use for investments. Within the policy’s duration, you can change funds (as per policy terms and conditions). Certain ULIPs also provide the option of a partial money withdrawal. The estimated value of your ULIP investment can be calculated using a ULIP calculator based on the premiums, tenures, and other information you enter.
- Tax advantages
Investors can lessen the impact on their income thanks to the taxability of unit-linked insurance plans. Your standard living expenditures won’t increase as a result of your investment decision. Thus, be sure to understand the ULIP taxation rules before acquiring the plan.
