Did you know the tax efficiency of ULIPs?

Unit Linked Insurance Plans are unconventional life insurance plans which offer you the benefit of insurance as well as market-linked returns. While most of you understand the concept of ULIPs, are you familiar with their tax angle?

ULIPs are tax-saving investment avenues like other life insurance plans. The premiums paid qualify for tax deduction under Section 80C (Section 80CCC for pension oriented ULIPs) up to a maximum of Rs.1.5 lakhs. Even the benefits received are tax-free. Here’s how –

  • Maturity or death benefit received under normal ULIPs is tax-free under Section 10 (10D) as long as premium is 10% of the sum assured in all the years. There is no limit on the tax-free benefit. The entire benefit qualifies for the exemption.
  • In case of pension ULIPs, while the death benefit is tax-free, for maturity benefit the scene is different. 1/3rd of the entire corpus accumulated is allowed as a tax-free withdrawal under Section 10 (10A). The remaining 2/3rd of the corpus is paid as annuity pay-outs. These annuity pay-outs attract tax at the applicable income tax slab rate.

So, ULIPs give your customers dual tax benefits. The money invested and the benefits received are both tax-free along with the promise of market-linked returns. Whether the client invests in equity or debt-oriented funds, their tax benefits do not change.

The most interesting tax efficiency of ULIPs is because switching is also tax-free. Your clients can change their investments from equity to debt and vice-versa and such changes would not result in any tax incidence. There is no need to anxious about long-term or short-term capital gain taxation concerns for any equity-debt switch. This benefit is unique to ULIPs and does not apply to any other investment product available in India. This makes ULIPs a 360 degree tax efficient investment tool.

These tax benefits in ULIPs are unparalleled making them one of the best tax-saving investment avenues for your clients.

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