A unit-linked insurance plan is the best investment option for a number of factors. ULIPs can effectively meet the needs of people who want to get life insurance and grow their money over time. Let’s learn more about the taxation of ULIP plans and their other features.
Summary of ULIPs
A Unit-linked Insurance Plan is exceptional because it provides the policyholder with two advantages. A ULIP’s premium payments are split into portions for insurance and investments. The type of investment the policyholder wishes to make with it is up to him.
The remaining portion of the premium is invested, at the customer’s discretion, in a variety of debt and equity funds. ULIP tax benefits are available for the policyholder to lessen their financial burden, just like with all other life insurance policies.
Due to its potential to offer policyholders higher returns, ULIPs are a good investment choice. Significant life goals like a child’s higher education or retirement planning can be achieved with its assistance. Managing tax obligations is made easier by the additional ULIP tax benefits.
It is critical to remember that ULIP has risks. The success of the fund is impacted by the market performance because ULIPs are market-linked investment products. The investor must decide their level of risk tolerance before proceeding with the transaction. The risk factor may change depending on the sorts of funds that might be invested under the ULIP.
The ULIP calculator is a simple tool that you can use to predict the return.
Tax Advantages of ULIPs
Any decision you make in life that includes spending your hard-earned money deserves careful consideration. The majority of people make financial plans in order to manage daily spending and fund future demands better.
Although ULIP investment is worthwhile, it can affect your ability to make a living. The Government of India offers its citizens who own ULIP plansa number of tax advantages. Your investment in a qualifying plan qualifies for a tax deduction under a ULIP.
This is implied by the rule that allows for the deduction of “any sum paid to maintain in force” payments made for a life insurance policy. The additional elements paid to the insurer, such as service tax and other fees, may also be included in the ULIP tax advantage.
Section 80C of the Indian Income Tax Act (life insurance premiums are tax deductible) and Section 80CCC of the Act are the two main sections that apply to ULIP tax benefits (the amount paid towards pension plans is tax-exempt).
These regulations state that an annual ULIP tax benefit of up to Rs. 1,50,000 is permitted under sections 80C and 80CCC. This means that even if you can invest more money, the total ULIP tax exemption is limited to Rs. 1,50,000 annually. Remember that the annual premium should not exceed 10% of the amount assured. 15 lacs and the yearly premium is less than Rs. 1.5 lacs. The available ULIP tax benefit is still Rs. 1.5 lacs, or 10% of Rs. 15 lacs, even if the yearly premium is greater, say Rs. 3 lacs for the same value assured of Rs. 15 lacs.
To be eligible for the ULIP tax benefit, the plan must be in operation for at least five years. The ULIP tax benefits you received in the first four years will be recovered if you continue paying premiums for the plan in the fifth year.
To take advantage of ULIP taxation, ensure you have a long-term investment horizon and continue to pay the premiums during the whole paying period. Significantly, the authorities may amend the tax legislation to affect how taxable ULIPs are.
ULIPs can be a valuable investment tool for individuals looking to save income tax in India. ULIPs offer the dual benefit of investment and insurance, which provides financial protection and allows individuals to save on tax liabilities. The premiums paid towards ULIPs are eligible for tax deductions under Section 80C of the Income Tax Act, while the proceeds received on maturity or in case of passing away are exempt from tax under Section 10(10D).