ULIP Plans Advantages & Tax Benefits


Looking for some room to make your investments in order to reduce your tax outgo? Thankfully there are optimum plans that save us from paying hefty tax amounts. This is why tax optimization is a prudent idea since it not only saves you money through tax savings but it is also beneficial in developing wealth for your long-term financial goals, provided you choose the correct investment option.

Let’s take a closer look at some of the incredible ULIP tax benefits and plan advantages.

Advantages of ULIP

Below is a list of top ULIP benefits offered by unit-linked insurance policies(ULIPs).

  • Consistent Savings: A ULIP policy is a good approach to get into the habit of saving regularly and discipline, which will help with long-term financial planning.
  • ULIP Tax Benefits: Under Section 80C of the Income Tax Act of 1961, you can claim a tax deduction benefit of up to 1.5 lakh per year. In addition, section 10(10D) of the Income Tax Act exempts maturity returns from taxation if the terms and circumstances are met.
  • Safeguards Life Cover: In India, a ULIP plan gives the security of a life cover, which helps keep your family and loved ones safe while you are gone.
  • Huge Growth Possibilities: In ULIP insurance, you can earn larger returns from equities and debt funds (depending on market conditions). As a result, you can attain your long-term goals in life, such as buying a new car, or house, supporting your child’s higher education, marriage, and so on.
  • Flexible Investment: You can have a lot of freedom and control over your money, such as fund changeover, partial withdrawal, premium redirection, and top-up provide different options for managing and investing your money in ULIP holdings.
  • Added Bonuses: By investing for a longer duration and paying premiums on time, the insurance company will supplement your funds with additional bonuses in various forms- by the terms of the policy chosen.

ULIP Tax Benefits

  • Premium ULIP tax benefits: The foremost advantage of ULIP policy is that you can deduct the whole premium you pay from your taxable income up to a ceiling of Rs 1.5 lakh under section 80C of the Income Tax Act, 1961, subject to the restrictions therein. The amount of life cover you need should be at least ten times the amount you pay in annual premiums.
  • Maturity ULIP tax benefits: Maturity benefits are a great way to save some money in taxes. For example, suppose you pay all of your due premiums for policies issued before February 1, 2021. In that case, you will not have to pay any tax at the time of maturity for policies because ULIP provides a tax-exempted maturity amount under Section 10 (10D) of the Income Tax Act 1961, subject to the limitations within. However, if the aggregate premium in a financial year exceeds Rs.2.5 lakhs, in that case, the maturity proceeds from such insurance will be taxed as a capital asset under the current Finance Bill for policies issued after February 1, 2021.
  • Partial withdrawals without tax: If you want to withdraw your amount from your ULIP plan after the five-year lock-in period, you won’t have to pay taxes on that withdrawal, as long as the amount is less than or equal to 20% of the fund’s value.
  • Avail ULIP tax exemption, in the case of mortality: In the absence of the policyholder, beneficiaries get the entire sum guaranteed with ULIP tax exemption. As a result, while the family cope with the loss of a loved one, they do not have to worry about their life goals being restricted due to the lump-sum payment or monthly payment.
  • Top-ups Deductions: One of the top advantages of ULIP programmes is their adaptability. ULIP, for example, allow investors to boost their investment by purchasing monthly top-ups. Furthermore, these top-ups are eligible for income tax deductions under Section 80C of the Income Tax Act of 1961, subject to the stipulations.
  • Long-Term Capital Gains (LTCG) Tax Avoidance: The LTCG tax is levied on profits made from equity markets, including shares, equity mutual funds, and Equity Linked Saving Schemes (ELSS) if the earnings exceed Rs 1,00,000. A ULIP plan, on the other hand, is still exempted from the LTCG tax. Furthermore, while ULIP plans provide the option of investing in the stock market, they are still excluded from paying LTCG tax.

Bottom Line

ULIP provides three benefits in one. ULIPs, which are essentially insurance products, are one of the few plans that can help you develop your wealth while also saving taxes. The additional tax savings on investment and maturity are, of course, the icing on the cake.


*Tax benefits are as per the Income Tax Act, 1961, and are subject to any amendments made thereto from time to time
The article is meant to be general and informative in nature and should not be construed as solicitation material. Please read the related product brochures for exclusions, terms and conditions, warranties, etc. carefully before concluding a sale.
Make responsible financial decisions. Consult with your financial advisor before making any decisions on insurance purchase.

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