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Tax Implications on Maturity Benefit From An ULIP

A ULIP is a combination of investment opportunity and term life insurance. The dual benefits provided by ULIPs offer the policyholder an opportunity to achieve their life goals. A policyholder can get both market-linked returns and financial security to your loved ones. Investors can decide among various ULIPs to allocate their hard-earned money and invest as per their risk appetite and investment avenues. Another perk of new-age ULIPs is that the policyholder is allowed to do multiple switches without any additional transaction costs, also there is no capital gains tax implication as well. 

The policyholder gets the benefit of wealth maximization without any tax restrictions. ULIPs provide tax exemptions on the premium paid by the policyholder and the payout of the maturity benefit.  The amount received on the maturity date by the life assured is exempted from tax as per section 10(10D) of the Income Tax Act.

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Tax Implications on Maturity Benefit From An ULIP

When the policyholder invests in ULIP,  he is entitled to receive the fund value at the end of the policy term. The fund value is known as the value of your total investments made over time that may have grown over the term of the policy. The total amount paid by the insurer at the end of the policy term is known as the maturity benefit. These maturity benefits are exempted from tax under Section 10(10D) of the Income Tax Act 1961. However, the policyholder has to fulfill the following conditions to receive tax benefits- 

1. For ULIPs Purchased Before 1st April 2012 - If the premium paid is higher than 20% of the sum assured value, the deduction is permissible on the amount i.e equal to 20% of the sum assured.

2. For ULIPs Purchased After 1st April 2012 - If the premium paid is higher than 10% of the sum assured amount, the deduction is permissible on the amount i.e equal to 10% of the sum assured.

3. If the premium paid is more than the specified limit then on maturity, income from the insurer must be added to the taxable income of the policyholder in the year of receipt of maturity proceeds. This amount is taxable at the applicable rate to the life assured. 

Conditions for Availing Tax Benefits Under ULIPs

1. Pay the premiums on a regular basis, do not miss the premium payments

2. Do not surrender the ULIP plan before its lock-in period i.e 5 years.

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To conclude, a ULIP policy can help you get your financial goals and life goals done if you plan your investment wisely. ULIPs aims at providing a single solution to 2 different issues i.e investment and life cover. Future goals can also be assisted via staying invested in ULIPs for a longer period of time. Moreover, you are advised to also seek help from tax professionals and accountants for better understanding and tax exemptions.

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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