How Can I Do Tax Savings With ULIP Plan?
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Life insurance is provided through ULIP. ULIP is a market-linked plan which offers the chance for wealth generation together with insurance and superior tax advantages, in contrast to traditional life insurance techniques including term insurance plans which only help in providing life insurance protection or high-risk investment vehicles like mutual funds that do the same.
A more dependable kind of life insurance is a unit-linked insurance plan (ULIP). Given the advantages of ULIP taxation, safety & security, and returns combined in one insurance policy, it is one of the finest vehicles for long-term wealth growth. Additionally, it offers you the ability to invest while also providing life insurance as a bonus. To know more about tax savings under ULIPs, read on.
What Are The Tax Benefits Under ULIP Plans?
The finest financial instrument for long-term investing is ULIPs due to their tax advantages. Even if there are many tax benefits associated with ULIPs, a few of them are what make ULIPs the finest tax-saving strategy for contemporary investors. ULIP taxation is a wonderful method to save money on taxes without much fuss since it offers tax benefits on all three phases of an insurance policy, including the premium, proceeds, and returns, as well as extra tax benefits including tax-free switches and premium top-ups. Additionally, you get access to priceless tax-free services that would have otherwise been expensive.
Following are the tax benefits under ULIP Plans -
- Tax Deductions - Under Section 80C of the Income Tax Act of 1961, the premium paid for a ULIP is eligible for a tax deduction worth up to 1,50,000 rupees. The premium must, however, be below 10% of the plan's total insured in order for this discount to apply. The deduction value still is restricted at 10% for premiums beyond a certain threshold.
- Maturity Tax Benefits - The term "maturity" describes your policy's conclusion. When a ULIP matures, you get the higher of the sum insured or the whole value of the unit-linked assets. According to Section 10(10D) of the Income Tax Act of 1961, this payment is tax-exempt. 10% of the worth of the sum guaranteed must be the maximum premium sum.
- Tax-Free Partial Withdrawals - After the ULIP's required 5-year lock-in period has passed, you can make partial withdrawals tax-free. The withdrawal amount, however, is limited to 20% of the entire sum insured value. This aids in tax avoidance and enables you to take out a portion of your savings for a variety of reasons, including retirement, property purchases, marriage, children's education, etc. As a result, you are free to sometimes withdraw money.
- Death Benefit - A ULIP's death benefit that is paid to your nominee or family members is indeed not subject to taxes. The total sum insured and the earnings from market-linked investments made under the plan are both included in this benefit.
- Tax Deductions - After the initial 5-year lock-in period, ULIPs allow for top-up investments and cash contributions. Under Section 80C and Section 10(10) D of the Income Tax Act of 1961, these top-ups are tax deductible. The premium amount, however, cannot be greater than 10% of the amount insured.
- Single Plan - Compared to mutual funds, PPFs, and other standard insurance plans, unit-linked insurance plans provide a number of advantages. Although it offers life insurance, it does not assist in wealth growth. Mutual funds, on the other hand, provide you fantastic returns but no insurance. ULIP plans, however, provide a bridge and an extra advantage of tax savings.
Endnotes
ULIP serves as the ideal link between straightforward life insurance protection solutions like pure term plans and high-risk investments like mutual funds. High yields, life insurance, and the ULIP tax benefit are all provided. Additionally, ULIP is a highly adaptable contemporary insurance plan that puts your investment and financial decisions in your hands.
Also read: How Does ULIPs Work?
