tax benefits

Unit-Linked Insurance Plans are one of the best tax-saving tools of investment accessible to investors today. They provide wealth creation and life coverage as key features of these plans. You will seldom discover an investment option that can deliver all the perks of a ULIP policy. With the same 5-year lock-in period, it offers you higher yields than the general tax-saving fixed deposits, post office savings and NSC in most cases, especially enabling investors to combat inflation in the long run. The best part is that you get similar tax benefits, while your maturity proceeds may also be tax-free, subjecat to certain conditions. Here’s learning more about these investment options and their tax-saving features.


Benefits Of ULIPs In Terms Of Tax Maximisation

What is ULIP policy? ULIPs are unquestionably a fantastic tax-saving tool in your arsenal, aside from having a short lock-in time and offering good returns. This is because they combine both investments in market-linked instruments and life insurance coverage. Here are some amazing facts about how ULIPs can be utilised for maximising tax benefits.

  1. Tax Benefits On Premiums- First off, Section 80C allows you to deduct up to Rs. 1.5 lakh of the policy premiums that you spend on your ULIP plans. To benefit from tax deductions, keep your ULIP policy active for at least five years. This helps you slash your taxable income greatly.
  2. Tax Benefits For Maturity- Market-linked investment plans (ULIPs) provide maturity amounts that are tax-free in accordance with current regulations, like Section 10 (10D) of the Income Tax Act of 1961. If the policies were purchased between 1 April 2012 and 1 February 2021, the premium must amount to less than 10% of the insurance coverage in order to qualify for tax benefits at maturity. To be eligible for tax advantages at maturity, plans must be purchased between 1 April 2012 and 1 February 2021 with premiums that are less than 10% of the insurance coverage. To qualify for tax benefits at maturity for plans purchased after 1 February 2021, the total amount of premiums paid must not exceed Rs. 2.5 lakh.
  3. Tax-Free Withdrawals Upon The Policyholder’s Death- The family of the insurance holder receives the sum insured amount plus any profits made by the ULIP plan in the event of the policyholder’s death. According to income tax regulations, this payment is exempted from taxes. Even partial withdrawals from a unit-linked insurance plan are tax-free. After the lock-in period of five years, you are not required to pay taxes on withdrawals from ULIP plans as long as the withdrawal sum does not surpass twenty per cent of the fund value.
  4. Top-Up Deductions- By purchasing recurrent top-ups, ULIPs provide investors with the freedom to grow their investments. There are deductions applicable for these top-ups, subject to the overall limit.
  5. Long-Term Tax Benefits- ULIPs offer tax advantages if you have a long investment horizon. As ULIPs have a 5-year lock-in term, you benefit from tax savings on insurance premiums that continue for a minimum of five years. Over time, if you stick to your policy, you could accrue sizable benefits.
  6. Partial Withdrawal Tax Benefits- ULIPs provide for tax-free partial withdrawals. After the lock-in period has ended after 5 years, you are not obligated to pay taxes on withdrawals from ULIP plans. The limitation is that the withdrawal amount cannot exceed 20% of the fund’s worth or amount.
  7. Tax Benefits, Life Cover And Investment Under A Single Plan- Compared to mutual funds, PPFs, and other standard insurance plans, unit-linked insurance plans are highly advantageous. ULIPs, in contrast to regular life insurance or mutual fund investments, intend to build a bridge between these two concepts.


Traditional insurance, PPFs and mutual funds are outperformed by ULIPs. Although it may offer life coverage, life insurance doesn’t aid in wealth accumulation. On the other hand, investments in market instruments give you a chance to earn significant returns while gaining insurance protection simultaneously. The advantage of a ULIP policy is that it takes care of almost every need of an investor while ensuring tax benefits.


In conclusion, ULIPs give you a chance to take advantage of tax planning advantages to meet your wealth-creation objectives and secure the future of your family. The plans are adaptable, offering a variety of fund options that you choose based on your investment goals or changes in the market. You can invest in a tax-efficient manner with ULIPs and take partial or full fund withdrawals absolutely tax-free at maturity. Moreover, you can scale up your tax benefits considerably with the help of unit-linked insurance plans. They are ideal alternatives to many long-term investment avenues for their dual benefits, as outlined above. Hence, you should certainly consider including them in your portfolio.


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