7 Things To Know About The Tax Benefits Of ULIPS

What is a ULIP?

  • Unit Linked Insurance Plans, or ULIPs, are investment and insurance tools that include life insurance as a benefit for the life assured.
  • Tax-saving benefits, which are available both during the policy term and at maturity, are one of the special features of ULIPs.
  • Due to its flexibility, many favour ULIP plans above other accessible investment options.
  • It is regarded as a reliable choice for achieving long-term wealth growth objectives. This is such that it combines returns, tax benefits, and insurance.

In addition to offering superior returns and shorter lock-in periods, ULIPs are well-liked tax-saving tools. Let’s examine seven aspects of ULIP tax benefits:

  1. Tax savings on paid premiums for ULIPs

Sections 10(10D) and 80C of the Income Tax Act, 1961 allow policyholders to deduct up to Rs. 1, 50,000 in taxes from the insurance premiums they pay for ULIPs. Keep your ULIP policy active for another five years to benefit from the tax break.

  1. ULIP tax benefits for maturity
  • Market-linked investment plans (ULIPs) provide maturity amounts that are tax-free in accordance with current regulations, such as section 10 (10D) of the Income Tax Act of 1961.
  • If the policies are purchased between April 1, 2012, and February 1, 2021, the premium must be less than 10% of the sum insured in order to qualify for tax benefits at maturity.
  • If the yearly premium is less than 20% of the sum insured, the maturity amount for those who purchased plans before April 1, 2012, will be tax-free.
  • To qualify for tax benefits at maturity for plans purchased after February 1, 2021, the total amount of premiums paid must be less than Rs. 2.5 lakh.
  • The death benefit is likewise exempt from income tax deductions in the event of the life assured’s passing.

It should be mentioned that as of February 2021, ULIPs are no longer exempt from Long Term Capital Gains Taxation under Government of India (GoI) regulations (LTCG).

  1. Death benefit withdrawals are tax-free

The family of the policyholder is entitled to a sum insured amount in addition to the returns produced by ULIP plans in the terrible event of the policyholder’s passing. According to Section 10(10D) of the Income Tax, the dividend is exempt.

  1. Tax advantages of partial ulip plan withdrawals

ULIPs provide for tax-free partial withdrawals. After the lock-in period has ended for 5 years, you are not obligated to pay taxes on withdrawals from ULIP plans. The limitation is that the withdrawal amount won’t be greater than 20% of the fund’s worth or amount.

  1. Top-up deductions

By purchasing top-ups, ULIP gives customers the ability to expand their investments. Sections 80C and 10(10D) of the tax code permit income tax deductions for these top-ups.

  1. Long-term tax advantages

For a long-term investment, you can benefit from ULIP tax benefits. You benefit from the tax savings on your premiums for at least five consecutive years during the lock-in period, which is around five years. You can continue to receive tax benefits for ULIPs if you stick with your current policy.

  1. Under a single plan, ULIP provides investment, life insurance, and tax advantages.

Compared to mutual funds, PPFs, and other standard insurance plans, unit-linked insurance plans are highly advantageous. Although it provides life insurance, it does not assist in wealth creation. Mutual funds, on the other hand, give you fantastic returns but no insurance. ULIP, in contrast, intends to build a bridge and give you the added benefit of tax savings. The estimated value of your ULIP investment can be calculated using a ULIP calculator based on the premiums, tenures, and other information you enter.

* Currently, there are 2 tax regimes in India – new and old. To get the tax benefit you desire, choose the correct one after consulting an expert. You can opt for a regime change during the next financial year.

Basic Characteristics and Advantages of ULIPs Provide Insurance Together with Investing Benefits

  • Choose and change between funds

During the policy tenure, ULIPs permit moving between equity and debt funds at any moment. A set number of switches are permitted without incurring any additional fees within a fiscal year.

  • Partial withdrawals

The initial lock-in duration for all ULIP plans is 5 years. After the lock-in period, a policyholder may choose a certain number of withdrawals from the accruing amount. No further fees are necessary for you to pay.

  • Redirection of premiums

You can switch your future premium payments amongst the available fund options whenever you invest in ULIPs. You must state the policy number and the type of fund you are directing your premium payments. The portion of the premium that is distributed to each type of fund can also be specified. The ULIP calculator is a simple tool that you can use to predict the return you might get at maturity by entering a few details.


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