Tax Benefits of ULIPs to Help You Increase Your Household Income Now and In Future

However, the premium paid must not exceed 10 percent of the sum assured.3Death of the policyholderThe death benefit paid to the beneficiary/nominee of the policyholder is again completely tax-free.

Tax Benefits of ULIPs to Help You Increase Your Household Income Now and In Future

Most of us spend ample time figuring out the ways to make more money, right? We all imagine what we could do with a little extra cash, whether it's a one-time windfall that we get today or a boost for our future. For this purpose, we make investments in financial products to cater to our needs and goals.

Amongst the plethora of financial products available in the market today, Unit Linked Insurance Plan is a product that not only helps create wealth but also provides immense tax-benefits. Meaning, the tax benefits help you increase your household income in the present and in the future. Here's how:

Tax Benefits During Investment in ULIPs

Section 80C of the IT Act allows you to deduct the amount that you invest in a ULIP plan from your taxable income. For instance, if you pay premiums worth Rs. 40,000 towards your ULIP plan, the entire amount can be deducted from your taxable income. The maximum deduction that you can claim under Section 80C is Rs.1.5 lakhs, and this benefit is offered to everyone, regardless of the tax slab that s/he falls in.

For example, if you fall under the highest tax bracket of 30% and you invest the entire amount of Rs.1.5 lakhs in a ULIP plan, you can save up to Rs. 45,000 (30 % of the invested amount) from your tax liability. This is possible as your taxable income is computed as:

(Total taxable income - sum invested as premiums in ULIPs)

However, to claim this deduction, your ULIP plan must remain active for at least two years. Further, if you discontinue the plan during the second year, the benefits given in the first year will be added back to your taxable income. Therefore, it's significant to ensure a long-term investment horizon in ULIPs and continue paying premiums during this term.

Tax Benefits of ULIPs During Maturity

Apart from the tax benefits mentioned above, ULIPs also offer tax savings in the future, i.e. at the time of withdrawal. Usually, withdrawals occur in the following three cases:

Sr. No	Withdrawal Event	Tax Benefit
1	The maturity of the policy	Insurers like Future Generali offer entirely tax-free payout at the time of maturity- as exempted under Section 10 (10D) of the IT Act. This is a significant advantage which is not available for other investments like mutual funds, FD's, etc.
2	Surrender of the policy	In case the plan is surrendered for early withdrawal (partially or fully), the payout received is completely tax exempted, provided the plan is active during the five-year lock-in period. However, the premium paid must not exceed 10 per cent of the sum assured.
3	Death of the policyholder	The death benefit paid to the beneficiary/nominee of the policyholder is again completely tax-free. In this case, the ULIP plan kicks in as a life insurance plan by offering the assured life cover to the family of the policyholder. Also, the payout in such an event can be more than the sum assured depending on the market appreciation for the unit-linked investment.

ULIPs Tax-Free Benefits: Role in Milestone-centric Planning

As mentioned before, you are allowed to make partial withdrawals from your ULIP plan after the lock-in period of 5 years is over, and the withdrawals are completely tax-free. Moreover, this feature allows you to use your ULIP plan for goal-centric planning. Meaning, you can wisely use your plan to financially cater to significant milestones of your life like marriage, purchasing your house, funding education or wedding of your children etc.

Concluding: Investing in a ULIP plan offers you the best combination of investment, life cover, and tax benefits. Moreover, it's an ideal investment for people with varying risk-appetites- low, moderate or aggressive. So, be the early worm and invest in a ULIP plan today to reap the tax returns for this year.