Are ULIP returns taxable?

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Are ULIP returns taxable
Introduction

ULIPs come with a lock-in of 5 years which can help you inculcate a habit of disciplined investing. Since ULIP is a long-term insurance contract, investing in a single ULIP helps. ULIPs have the potential to garner better returns than any other insurance product because of its equity advantage. ULIPs invest the premium paid by you in various asset classes through different funds. Tax-saving funds have historically given double digit returns, but you need to look for a new fund every year, for one-time investment. For ULIPs, the renewals take care of tax savings.


Is maturity of ULIPs taxable?

ULIPs can be considered as those useful financial tools that can be used to bridge the gap between the various investment options along with the added advantage of significant tax savings . Life insurance products like ULIPs are more reliable wealth creation solution over the long term, keeping in mind the returns, protection and tax savings, all combined in one product. So, are ULIP returns taxable? Let’s check out.

ULIP permits investing one’s premium in a mix of debt and equity funds in varying proportions, allowing inter-fund transfers through switches and all this with no tax liability. A ULIP is an insurance plan where the premium paid is invested in equity, debt, or money market instruments. Most investors invest in ULIPs as they are most viable tax saving instrument. It is because they are a hybrid of both insurance and investment instruments, which gives annual benefits as an investment instrument and tax benefits as insurance instruments, as Income Tax considers ULIPs as an insurance product.

The majority of individuals check the annual tax benefit to save the tax liability before investing in any financial instrument, but it’s wise enough to check the tax implication on the maturity of insurance policy, ULIP or any other investment. Most common question is, are ULIP returns taxable? ULIPs provide deduction under section 80C equal to the amount of premium paid for ULIP, but it’s significant to focus on the tax benefit on maturity. So, if someone asks, “are ULIP returns taxable?”. The answer is, as per law, upon the completion of the tenure of your ULIP, when they mature, the total amount received by you or your nominee will be completely exempted from tax under section 10(10D). But the tax benefits can only be availed if the conditions stated in Income Tax Act 1961 are fulfilled in respect of insurance premiums.

Death benefit paid under the ULIP is completely tax free. In this respect, the ULIP resembles a traditional life plan offering assured financial protection to the family of the insured. Of course, the payout can be higher than the sum assured depending on the returns generated by the unit-linked investments.

ULIPs have a minimum lock-in period of five years. The policy-holder is permitted to make partial withdrawals after this period. The partial withdrawals, which cannot exceed 20% of the fund value of the policy, are completely tax free, provided they are made after the completion of the lock-in period./p>

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