ULIP Tax Benefits – Tax Deductions & Exemptions Explained

Key Insights 

1. ULIPs come with helpful tax benefits. You can claim deductions on your premiums under Section 80C, and the maturity amount is tax-free under 10(10D). For newer policies, the exemption limit is ₹2,50,000.
    
2. You can keep your returns tax-free, make sure your yearly premium is less than 10% of the sum assured or stays within the ₹2,50,000 limit.
    
3. If you want growth, go for Equity funds. If you want to manage risk, Balanced funds are a better option. This way, your investments match your plans.

If you want to grow your wealth and save on taxes, a ULIP plan could help. You can get a ULIP plan 2.5 lakh tax benefit and also earn market-linked returns. This can be a good way to manage your ULIP investment tax benefits and save money.

ULIP tax benefits can help your finances in two ways. You get deductions on your premiums, your money grows, and you're under current laws. But the question is ULIP returns tax free? 

The ULIP 2.5 lakh tax exemption and ULIP tax benefit in new tax regime make it even more effective.

Example:

I put ₹2,50,000 each year into a ULIP. Thanks to Section 80C, I saved ₹75,000 in taxes at the 30% rate. After 10 years, I received ₹30,00,000 at maturity, and it was tax-free under Section 10(10D), which helped me get the most out of my investment.

Top 5 ULIP Tax Benefits

You can learn how to grow your wealth and save on taxes at the same time. Here are the top five ULIP tax benefits that make this investment both smart and practical.

Here is the list of the 5 ULIP tax benefits for the people:
 

ULIP tax benefit in new tax regime combines Section 80C tax deductions with tax-free maturity benefits under 10(10D), making them a smart and tax-efficient way to build long-term wealth.

How does the tax benefit in ULIPs work for Alia? Let see is ulip returns tax free for Alia?

Alia bought a ULIP to save for her daughter’s higher education. Her plan has a sum assured of ₹ 15,00,000, and she pays an annual premium of ₹ 1,80,000. Tax laws let her claim a deduction for the premium, but only up to 10% of the sum assured. So, Alia can claim up to ₹ 1,50,000 as a deduction from her taxable income, not the full ₹ 1,80,000, as long as she is not claiming any other deduction under Section 80C.

If Alia invests in a ULIP with a sum assured of ₹ 15,00,000 and pays an annual premium of ₹ 1,50,000, she can claim the full premium as a deduction under Section 80C, as long as she is not claiming any other deduction under this section.

Fund options available under ULIPs

Shape your wealth-building plan to fit your needs. ULIPs give you a range of fund options, like ulip 2.5 lakh tax exemption, so you can choose what matches your comfort level with risk and your financial goals.

Equity Funds: Equity funds invest your money in the stock market by buying shares of various companies. These funds may give you higher returns over time, but their value can rise and fall more often. They suit people who are okay with taking more risks.

Balanced or Hybrid Funds: Balanced or hybrid funds put money into both stocks and bonds. This mix helps manage risk and return, so your money can grow while you also get some steady income.

ULIPs offer different options, such as growth-focused Equity funds and balanced Hybrid funds, so you can choose what matches your own risk and return goals.

Conclusion

ULIPs help you build wealth in a tax-efficient way. You can claim Section 80C deductions on premiums, and both maturity and death benefits are tax-free under Section 10(10D). With flexible fund options, ULIPs make it easier to reach your long-term financial goals while keeping your tax burden low.

FAQs

I have proposed a ULIP scheme, as my time horizon is 10+ years. What is the tax expense after 10 years? 

Whether your ULIP is taxable after 10 years depends on whether your annual premium meets certain rules in the Income Tax Act, 1961, especially those added by the Finance Act, 2021.

What are the taxation benefits of ULIPs? 

Unit-linked insurance plans (ULIPs) offer a range of tax benefits under the Income Tax Act of 1961. You can get deductions for the premiums you pay, receive death benefits that are tax-free, and, if you meet certain conditions, enjoy tax-free maturity proceeds.

Can a ULIP plan be used as a tax-saving investment option? 

Yes, you can use a ULIP plan as a tax-saving investment in India. It offers benefits at different stages under the Income Tax Act, 1961. These benefits depend on certain conditions and the tax regime you choose, whether old or new.

Do ULIP plans offer tax benefits? 

Unit-Linked Insurance Plans (ULIPs) provide tax benefits in India under certain sections of the Income Tax Act, 1961. You can get these benefits at different stages, such as when you pay premiums, at maturity, or if there is a death benefit payout.

What are the tax benefits of investing in ULIP?

When you invest in a ULIP, you can get tax benefits under Section 10(10D) and claim tax deductions under Section 80C if you follow the rules.