Planning To Save Tax With ULIPs? Know This

BY YASHVI JAIN

Did you ever have a wish list? What does it look like? Do you want to buy a home? Give your family an international vacation? Buy a high-end car? These things are highly common nowadays, with higher disposable incomes and standards of living. However, to make this wish-list into a reality, you need to plan your finances smartly.

One way to make it a reality is by developing an investment plan that will help you in wealth accumulation. This is where Unit Linked Insurance Plans (ULIP) come in.

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ULIP is an investment option that not only protects your family against life's uncertainties but also allows you to create wealth. When you invest in a ULIP plan, a portion of your premium goes towards life cover. The remaining part is invested in debt and equity instruments that earn you returns over time. You can use the ULIP calculator to see how much premium you can pay affordably to keep your policy active throughout its tenure.

Most importantly, when you invest in a ULIP plan, you can save taxes under section 80c of the Income Tax Act, 1961. As per this provision, ULIP payments are eligible for tax deductions from your taxable income up to the permissible limit of Rs. 1.5 Lakh. Use an investment calculator to assess your liabilities before making a long term investment.

ULIP Tax benefits

ULIP plans help you save tax with your investments along with tax benefits at the time of its maturity. All the insurance providers these days offer an online ULIP calculator to understand the process of investment vis-à-vis your income. It is crucial to educate yourself about these things to utilize the tax-saving potential of ULIP fully. Let us discuss some of the benefits below:

• Benefits u/s 80C:

The investment you made in your ULIP plan is eligible for tax deduction u/s 80c for life insurance and 80CCC for a pension. As has been mentioned before, you can save a maximum of Rs. 1.5 lakh under both these sections. The deduction on the life insurance part of your ULIP plan can be claimed up to 10% of the sum assured or the premium, whichever is lower.

At the same time, a deduction can be claimed towards the premium paid for ULIP u/s 80CCC. However, it is essential to note that Rs. 1.5 Lakh limit is the overall limit to claim all the deductions u/s 80C/80CCC/80CCD(1). While it is your prerogative to invest a higher amount in your ULIP investment, the deduction will be capped to the permissible limit.

• Terms and Conditions to Claim the Deductions u/s 80C:

According to the Income Tax Act provisions, you are allowed to claim the amount that you pay to keep the policy in force. However, you need to pay premiums regularly and keep the investment in force to avail of tax benefits.

If you discontinue your ULIP plan after two years, then the tax benefits u/s 80C cannot be claimed. Any deductions you claimed in the previous year will be included in your income in that year.

• Tax Benefits on Partial Withdrawal and Maturity: If the premium paid towards your ULIP plan does not exceed 10% of the sum assured, then you are eligible to make tax-free partial withdrawals. The same tax exemption benefit is also applicable at the time of maturity.

However, anytime during the policy, if the abovementioned ratio exceeds the permissible limit, the future proceeds will become taxable, except in case of policyholder's death.

• Tax benefit under ULIP retirement plan: According to section 10(10A) of the Income Tax Act, commutation on retirement ULIP is tax-free. However, if you surrender the policy or receive the pension, then it will be eligible for taxes.

• Top-up Benefit

Another notable benefit of adding ULIPs to your investment plan is the provision to expand your investment with cash through periodic top-ups. The top-ups made in this case are also eligible for tax deduction u/s 80C as well as section 10 (10D), provided that the premium does not exceed 10% of the sum assured value.

ALSO READ: Top Facts To Know About Home Loan And Taxes

In any case, the wealth that you accumulate as a result of your top-up investments will ensure that your financial planning remains unaffected due to potential tax liability. You can also use the online ULIP calculator to accurately assess the amount you want to invest in a ULIP plan to achieve your long term as well as short term financial goals.

Don't forget to use an investment calculator to get the precise value of your return on investment. It would help if you also consider tax-saving benefits when using a ULIP calculator to compute your payable premiums.

ULIPs are a great investment choice for investors who are looking to grow their wealth over the years by staying invested in a robust financial plan.

(Disclaimer: The article is sponsored, and hence promotes some commercial links.)