Future Generali

ULIPs: The only market-linked product not under LTCG

In 2018, the Union Budget of India stated that Long Term Capital Gains (LTCG) tax would be levied on mutual fund returns. The policy is as follows-

10.4% tax rate will be charged on profits exceeding ₹1 lakhs made from equity mutual fund schemes if units are held for over a year. 

One exception to the LTCG tax policy is Unit Linked Insurance Plans (ULIPs). ULIPs allow you the dual benefit of life cover through insurance and wealth creation through market-linked investments. In addition to not being subjected to LTCG tax, there are many other tax benefits of ULIPs.

Tax Structure of ULIPs

ULIPs fall under the Exempt-Exempt-Exempt category, which means they are tax-exempted at the investment, accumulation and maturity stage. As ULIPs have an insurance component, they have a tax structure similar to traditional life insurance. Specifically, the tax benefits of ULIPs fall under Section 10(10D) and Section 80C of the Income Tax Act (ITA). According to Section 10(10D), if the maturity amount of ULIPs is a minimum of 10 times the cost of annual premiums, no tax is levied on it. 

Most ULIPs require a lock-in period of at least 5 years, which ensures that you do not dip into your savings and improves financial discipline. Moreover, with ULIPs, you can reap the benefits of equity-linked growth without the tax burden of LTCG tax. Additionally, the death benefit with ULIPs also remains tax-free. 

ULIPs offered by Future Generali India Life Insurance give you the flexibility to switch between funds and invest in plans tailored to your risk appetite. Offerings include equity-oriented, debt-oriented, or hybrid funds that have varying levels of exposure to equity and debt. This allows you to pick the funds that are best suited to your financial goals. 

For instance, the Future Generali Big Dreams Plan is a comprehensive ULIP geared towards a variety of needs. The investor gets to pick from 6 different funds that range from low risk to high risk. Based on personal goals, the investor can choose between a retirement-focused plan, a wealth-generating plan, and a plan to financially secure the dreams of their loved ones.

References: Post LTCG tax, are Ulips better than mutual funds? - Livemint, Imposition of LTCG tax: Does it make ULIPs a better …, Budget 2019 expectations: Long term capital gains (LTCG) tax …, Total Expense Ratio (TER) - Investopedia

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