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Things To Know About Tax Benefits Of ULIPs

Published On Nov 28, 2021 12:00 PM By InsuranceDekho

Many people discover that there is still time to make tax-saving investments. Tax optimization is a wise decision because it not only saves you money in the present in the form of tax savings, but it can also help you develop riches for your potential economic goals if you select the right asset device.

When it comes to tax-saving investments, there are several options to consider. However, some investments are wiser than others. In this article, we will look at why purchasing a Unit Linked Insurance Plan (ULIP) is one of the best options, particularly from the standpoint of tax planning, which is a subset of financial planning.

Things To Know About Tax Benefits Of ULIPs

Below are a few things to know about the tax benefits of ULIP:

  • Tax Benefit On Premium

The single most significant advantage of investing in a ULIP is that the entire premium paid can be deducted from your taxable income, up to a limit of Rs 1.5 lakh, under section 80C of the Income Tax Act, 1961, subject to the provisions stated therein. Life insurance should be at least ten times the amount of the annual premium paid.

  • Tax Benefits On Maturity

You purchased the ULIP and saved some tax at the time of purchase. But what happens if you sell your investment after it has matured? The good news is that if all due premiums are paid, you do not pay any tax at the time of maturity for policies issued prior to 1 February 2021, as ULIPs offer tax-free maturity amounts under Section 10 (10D) of the Income Tax Act 1961, subject to the provisions stated therein. If the aggregate premium in a fiscal year exceeds Rs.2.5 lakhs for policies issued after 1 February 2021, the maturity proceeds from such policy would be taxed as a capital asset under the recent Finance Bill. However, the tax exemption under Section 10(10D) would remain in effect for policies with annual premiums of less than Rs.2.5 lakhs in aggregate, subject to the provisions specified therein.

  • Tax-Free Partial Withdrawals

If you want to withdraw money from your ULIP after the five-year lock-in period, you won't have to pay taxes on it as long as the amount withdrawn is less than or equal to 20% of the fund value.

  • Death Benefit Paid Tax-Free

In the unfortunate event of the policyholder's death, the policyholder's nominees receive the entire sum assured or the total value of the fund in which the policyholder had invested, whichever is greater, according to the policy terms and conditions. While the family mourns the loss of a loved one, they do not have to worry about their plans being jeopardized because the lump-sum payment or payment in installments is available. Furthermore, except for a Keyman Policy, the entire payout is tax-free in the event of the policyholder's death.

  • Deductions For Top-Ups

Another advantage of ULIPs is their adaptability. For example, a ULIP allows investors to increase their investment by purchasing periodic top-ups. As a result, whenever you have extra money or need to make last-minute investments to reduce your tax bill, you can use it to buy more units as part of your ULIP investment. These top-ups are also eligible for income tax deductions under Section 80C of the Income Tax Act of 1961, subject to the provisions stated therein.

  • Exemption From Long-Term Capital Gains (LTCG) Tax

The LTCG tax was introduced in the Union Budget 2018 and is levied on profits earned from equity markets, whether through shares, equity mutual funds, or Equity Linked Saving Schemes (ELSS) if they exceed Rs 100,000. A ULIP, on the other hand, remains exempt from the LTCG tax. Furthermore, because ULIPs provide the option of investing in equity markets, they are exempt from paying LTCG tax.


ULIPs are the only products that combine insurance and investing. ULIPs are classified into several categories, ranging from equity to debt. Policyholders in equity ULIPs invest in high-risk equities and corporate stocks. Debt funds that invest in government securities, fixed-income securities, corporate bonds, and other similar options are suitable for investors seeking a medium level of risk. ULIPs can also assist in the creation of a retirement fund. When you do not have a steady source of income, it is critical to set aside money for the future. Furthermore, the tax advantages of ULIPs make them a good investment option for your current financial situation.

Also Read:

Top 5 ULIPs In India

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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