Unit Linked Insurance Plans (ULIPs) are a type of life insurance product that offers dual benefits of wealth creation and life insurance protection. It is also one of the best tax-saving investment tools available in the market. Premium paid on ULIPs is eligible for tax deduction up to a maximum of Rs 1.5 lakhs during a year. In addition, the amount you receive on maturity is also tax-free. ULIPs give you better returns than tax-saving fixed deposits, NSC, and post office deposits with the same lock-in period of five years.
There are different tax-saving investment options available in the market. Let’s take a look at some of the most availed tax-benefits of Unit Linked Insurance Plans (ULIPs).
The entire premium that you pay is eligible for a deduction under section 80C and 10D of the Income Tax Act. The maximum deduction amount is Rs 1.5 lakh per year.
Not only on premiums, the amount received by policyholders on maturity is also exempted from tax burden under Income Tax Act.
When one withdraws money from a ULIP after the five-year lock-in period, you do not need to pay any tax on those withdrawals.
In case of the death of the policyholder during the policy term, his or her nominee will receive a lump sum assured amount by the insurer. This payout is exempt under income tax rules.
Another feature of ULIP is flexibility. ULIP allows investors to increase their investment by buying periodic top-ups. These top-ups are also eligible for income tax deductions under section 80C of the Income Tax Act, subject to provisions stated therein.
Long Term Capital Gains (LTCG) tax was introduced in the Union budget 2018. This tax is applicable on profits earned from equity markets if the profit exceeds Rs 1 lakh. Though ULIPs offer the option of investing in equity markets, there is no tax liability on it.
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