United Linked Insurance Plans (ULIPs) are one of the best tax-saving investment tools available to investors today. It offers dual benefits of wealth creation and life insurance protection. You seldom find an investment product that can provide all the benefits of ULIP plan. It may offers you better returns than tax-saving fixed deposits, NSC and post office deposits with the same lock in period of 5 years.

A study by Economic Times found that ULIPS gave returns of 8-9% Past five years. They found that the flexibility to switch between debt and equity, tax-free returns and possibility of partial withdrawals make it a good option. ULIPs are more flexible than the NPS because the money is not locked till retirement and the policyholder can make periodic withdrawals.

Apart from a small lock-in period and good returns, ULIPs are certainly an amazing tax saving tool in your hand. Now, let’s explore the key things you should know about the tax benefits of ULIPs by taking Shalini’s example. Shalini invested in a ULIP to save for her daughter’s higher education. The ULIP offers a total sum assured of ₹ 15 lakh for an annual premium of ₹ 1.9 lakh. Let us now evaluate the deduction under Section 80C that Shalini can claim on this ULIP premium paid.

Tax Benefits on ULIP Premiums:

U/s 80C of Income Tax Act 1961, Shalini can claim a deduction of premium paid up to 10% of the total sum assured. Hence, she can claim a deduction of up to ₹ 1.5 lakh (overall limit of deduction U/s 80C )paid as premium towards ULIP from her taxable income and not the entire ₹ 1.9 lakh, provided that she is not claiming any other deduction under Section 80C.

Let us assume another scenario where Shalini invested in a ULIP with a total sum assured of ₹ 15 lakh with an annual premium of ₹ 1.5 lakh. In this case, she will be eligible to claim a deduction of an entire premium under Section 80C, provided that she is not claiming any other deduction under Section 80C.

    • ULIP Tax Benefits On Maturity/ Withdrawals/ Policy/ Payout:

The benefits on policy payout are covered U/s 10(10D) of Income Tax Act 1961.With the new tax amendments regarding ULIPs that the government announced in 2021’s budget, there have been changes in payout benefits.

One of the condition is If policy is issued on or after 1st Feb 2021 and If the premium paid by you in any yearduring policy term is uptoRs 2.5 lakh, then returns will be tax-free u/s 10(10D). But in case the premium is higher than Rs 2.5 lakh in any year of the term of the policy, Sec 10(10D) benefit will not be available.

Further, one has to complied other conditions of Section10(10D) also to avail tax benefits.

    • Deductions on top ups:

ULIPs give investors the flexibility to increase their investment by buying periodic top-ups. These top-ups are also eligible for income tax deductions under sections 80C subject to condition prescribed therein.

If Shalini was paying a premium of Rs 1 lakh, she could increase it to Rs 1.5 lakh and avail benefits under 80C.Provided that she is not claiming any other deduction U/s 80C of Income Tax Act 1961.

Conclusion

Unit linked insurance plans may score over traditional insurance, mutual funds and PPFs. While , Mutual funds allow you to get good returns and grow your wealth, but with no insurance coverage. The benefits of ULIP plan is that it bridges this gap and gives you an added advantage of higher tax savings. However, insurance being a long-term product, as an investor you may not really reap the benefits of the policy unless you hold it for the entire term of the policy which can range from 10 to 15 years. Thus, if you continue with your policy beyond five years you stand to gain more ULIP benefits.

A recent study found that ULIP investments have soared in India and constitute 41% of the policies sold in 2023. Most of these ULIPs offer a higher life-cover of up to 200 times the annual premium.

Future Generali Big Dreams Plan gives you an opportunity to grow wealth and insure your family’s future. It provides three options-

  1. Wealth Creation helps to plan for a specific goal like a house or your child’s education.
  2. Retire Smart helps to build a corpus for your retirement.
  3. Dream Protect will give the Fund Value on maturity or on the death of life assured (the company pays premiums on behalf of life assured in case of death and give the fund value at the end of the term to the nominee).

You can choose any option to secure your family’s future or a long-held goal and enjoy tax exemptions and tax free withdrawals on maturity or partial withdrawals as per applicable sections and conditions prescribe under the Income Tax Act 1961. To understand which policy works best for your particular needs & how, you can visit our website or talk to our trusted and experienced advisors.