If you are looking for tax saving options in India, Unit Linked Insurance Plans (ULIPs) are one of the preferred investment instruments available. If you’ve been wondering ‘Why should I invest in ULIP now?’ then it may help to learn all about the ULIP tax exemptions, so you can better understand why these investment plans are one among the many preferred tax saving options available in India.
So, let us take a closer look at the many tax benefits and ULIP tax exemptions you can claim for your ULIP investments under the different sections of the Income Tax Act, 1961.
Tax benefits offered by ULIP plans under the Income Tax Act, 1961
ULIPs, being tax saving options, offer three different kinds of benefits under the Income Tax Act, 1961. Here are the details.
Tax benefits on premiums paid
The premium that you pay for your ULIPs can be claimed as a deduction from your total income, as per section 80C of the Income Tax Act, 1961 and is up to Rs. 1.5 lakhs. If policy is not satisfying the Section 10(10D) conditions, amount of deduction under Section 80C is restricted up to 10% of capital sum assured for policies issued on or after April 1, 2012 and for policies issued before April 1, 2012 amount of deduction is restricted up to 20% of capital sum assured.
Tax benefits on maturity
If the policyholder survives the policy term, the insurer pays out the maturity benefits to the policyholder when the tenure of the plan comes to an end. These benefits are also exempt from tax, as per the provisions of section 10(10D) of the Income Tax Act, 1961. The conditions for availing this tax exemption are as follows:
- For ULIPs purchased on or after April 1, 2012, the annual premium should be less than or equal to 10 percent of the capital sum assured.
- For ULIPs purchased before April 1, 2012, the annual premium should be less than or equal to 20 percent of the capital sum assured. It may be noted that top up premium would also be considered for determining annual premium.
In case the policyholder passes away during the tenure of the plan, the death benefits received are tax-free in the hands of the nominee. Note that, Death proceeds will be taxable for the key man policy (Employer employee policy)