India Markets open in 1 hr 16 mins

Tax Saving: How investing in ULIPs can help you save taxes

tax saving, Ulip, Unit Linked Insurance Plan, ulip plan, ulip return, section 80c, Section 10(10D), capital gains, LTCG

Amongst different investment and life insurance products available in the market today, Unit Linked Insurance Plan (ULIP) can arguably be considered a way more reliable wealth creation solution for the investors over the long term. ULIP is a perfect combination of best returns, guaranteed protection, and maximum tax savings. Amongst a plethora of investor-friendly features offered by ULIP, one of its unique attributes is that it gives the investors the prerogative of investing the premium in a mix of debt and equity funds. The money can be invested in varying proportions further giving the investors the right of inter-fund transfers through switches.

The new-age online ULIPs, with reduced charges, better transparency and tax benefits have made them a must in any investment portfolio. ULIPs allow the investor to choose equity funds, debt funds or both. Being a long-term investment product, a ULIP also gives the investor the flexibility to switch between funds in sync with his financial goals. Further, investing in ULIPs can help you save taxes under sections 80C and 10(10D) of the Income Tax Act, 1961.

Apart from saving money, sensible tax planning is also an integral part of smart financial planning. When comparing different tax saving instruments, it is always best to choose an option like ULIP that offers the combined benefits of strategic flexibility, value appreciation, wealth protection, and tax savings. In the current market scenario, ULIPs have emerged as an unmatched financial tool best for bridging the gap between the various investment products along with the added advantage of substantial tax savings.

Section 80C of the Income Tax Act, 1961

Section 80C has a long list of provisions for tax deductions on a number of payments. Of these, payments made towards a life insurance policy premium for self, spouse or children up to Rs 1.5 lakh per year can be deducted from the taxable income of the taxpayer. This is available for resident individuals and Hindu Undivided Families (HUFs). ULIP is allowed as a life insurance plan under this section. The premium amount should not exceed 10% of the sum assured. Also, if the policyholder surrenders the policy before 5 years (for ULIPs), the tax deduction is reversed too.

Section 10(10D) of the Income Tax Act, 1961

According to Section 10(10D), Any sum received under a life insurance policy including the sum allocated by way of bonus on such policy is exempt from tax. However, no exemption, if premium payable for any of the years during the term of the policy exceeds 10% of Actual capital sum assured. Therefore, on maturity, the proceeds are not taxed.

At the same time, ULIPs offer amazing tax savings on withdrawals that the mutual fund investors are often deprived of. The withdrawals may occur in the different scenarios including the death of the policyholder, maturity of the policy and partial withdrawal at the discretion of the policyholder. As per the policy wording, the death benefit paid under the ULIP remains completely tax-free. This is another aspect under which a ULIP resembles a traditional life insurance plan offering assured financial protection to the dependents.

Capital Gains

Additionally, in the Union Budget 2018, the long-term capital gains (LTCG) tax was reintroduced for gains made from investments in balanced and equity funds. Currently, long-term capital gains of more than one lakh rupees are being taxed at 10% without indexation. Also, short-term capital gains (STCG) and LTCG from debt funds are taxed too. However, in ULIPs, all these gains are exempt from tax both long-term and short-term.

When you invest in ULIPs, all these tax benefits along with a lock-in period of 5 years ensure that your money works as hard as you do for generating returns and utilizing the power of compounding optimally. Apart from the tax benefits, the fourth generation, new-age online ULIPs like Bajaj Allianz Goal Assure with zero premium allocation charges, no policy administration charges, and overall lower charges along with the ROMC (return of mortality charges) features make them a great investment product for any type of investor.

(By Santosh Agarwal, Associate Director-Life Insurance,