Tax Benefits of ULIP Plans Under Section 80C and 10(10D)
ULIP plans are some of the best policies that combine investments and insurance coverage for the maximum possible benefits. There are several key aspects related to ULIPs including tax exemptions/benefits, charges, and ways to scale up your overall returns. Understanding and knowing the tax benefits is essential and this is where a small guide is given below for your perusal.
Tax Benefits Worth Noting for ULIP Plans come with the following tax benefits:
● Section 80C- This offers tax deductions on the premiums that you pay for your ULIP plans. There are key criteria that you also need to know about, along with applicable limits. The maximum limit for the deduction under this section is ₹ 1.5 lakh per annum and this covers all investments and expenditure that you can claim under Section 80C, inclusive of the premiums paid for ULIPs. If you purchased a ULIP on or after 1st April 2012, then you can get this deduction only when the premium amount is lower than 10% of the sum assured. If the premium exceeds 10% of the sum assured, then only the eligible portion within the 10% limit qualifies for deduction under Section 80C. If you purchased ULIP plans prior to 1st April 2012, you can get deductions on the annual premium only when it is less than 20% of the sum assured. If it exceeds this percentage, then the entire premium will be ineligible for tax deduction under Section 80C.
● Section 10 (10D)- Section 10 (10D) is what offers tax exemptions on the maturity payout offered by ULIP plans. You can get tax exemptions on the payout at maturity, subject to the following conditions:
● If the ULIP or multiple such plans were issued on or before 1st February 2021, then the maturity benefits will be tax-free based on Section 10(10D) conditions, provided the policy was not surrendered before five years.
[Read About: Tax-Saving Fixed Deposits ]
● If the ULIP was issued on or after 1st February 2021, and the annual premium remains below ₹2.5 lakh throughout the tenure, then the maturity benefits will be tax-exempted as per Section 10(10D).
● If the ULIP was issued on or after 1st February 2021, and the premium exceeds ₹2.5 lakh in any financial year, then the maturity benefits will be taxed as capital gains under Section 112A, with a 10% tax rate applicable on gains exceeding ₹1 lakh per annum.
● If multiple ULIPs were issued on or after 1st February 2021, and their combined annual premium remains below ₹2.5 lakh for every policy year, then the maturity benefits from each ULIP will be tax-free.
● If the combined premium exceeds ₹2.5 lakh, then none of those ULIPs will qualify for tax exemption, and their maturity proceeds will be taxed as per long-term capital gains (LTCG) rules. ● Any amount received as the death benefit is always tax-exempt under Section 10(10D), regardless of the premium amount or policy issue date.
Final Thoughts
When it comes to partial withdrawals on ULIP plans, you have to first keep the policy without surrendering it before the lock-in period for tax benefits. Using a ULIP Calculator can help you estimate the impact of these tax benefits and make informed financial decisions. Section 10 (10D) also offers benefits on partial withdrawals as per the conditions mentioned above. Thus, you should keep these tax benefits in mind while buying and managing ULIPs. Additionally, leveraging a ULIP Calculator allows for better planning of premiums and returns, ensuring maximum benefits from your investment.
