Last Updated on May 24, 2019 by Gopal Gidwani

When it comes to the sale of insurance products, like a Unit Linked Insurance Plan (ULIP), most of them are either mis-sold or misinterpreted. Customers are lured into the purchase of these products in the name of higher ULIP returns and taxing saving benefits. When a customer buys a ULIP Policy, a majority of times he is unaware of the tax implications. In order to help you understand the tax implications better, take a look at these tax benefits allowed on a ULIP Policy.

What are the ULIP tax benefits?
Investing in ULIPs means availing the tax benefits in order to save more money. These tax benefits are allowed to the policyholders as stated by the Insurance Regulatory and Development Authority of India (IRDAI). Every ULIP Plan offers tax benefits on two things; premiums and maturity benefits. In order to understand the tax implication on both these things, read below.

• Premium
  As per Section 80C of the Income Tax Act, 1961, the premiums paid towards the ULIP Policy are eligible for deduction. The premiums are deductible up to Rs. 1,50,000 on the taxable income.

• Maturity benefit
  As per Section 10(10D) of the Income Tax Act, 1961, the amount received on the date of maturity of the policy is tax-free.

ULIP Purchased before April 1, 2012	ULIP Purchased after April 1, 2012
If the premium is less than 10% of the sum assured, then the deduction can be availed	If the premium is equal to 10% amount of the sum assured, then the deduction can be availed
When the premium is more than 10% of the sum assured, a tax deduction is allowed on the amount which equals to the 10% of the sum assured	When the premium is more than 20% of the sum assured, a tax deduction is allowed on the amount which equals to 20% of the sum assured.

What are the tax implications on ULIP’s maturity benefits?
The amount received at the time of the maturity of the ULIP Policy can be availed only if the following conditions are fulfilled:

• If you’ve purchased a policy between April 1, 2003, or March 31, 2012, and the value of sum assured is 5 times more than the annual payment of the premium
• When you opt for a ULIP Policy after April 1, 2012, and the sum assured is 10 times more than the annual premium

How to claim the amount of deduction?
For the policyholders to claim the deductions, the Income Tax Act has put down a clause stating ‘any amount paid to keep in force.’ Hence, a deduction can be claimed on the entire amount (up to INR 1,50,000) as per the Section 80C of the Income Tax Act. This deduction amount includes service taxes and the rest of the charges collected by the insurer.

If the premiums are paid on a regular basis, the ULIPs will continue to offer tax benefits to the policyholder. If a policyholder surrenders his policy within 5 years, then he won’t be allowed any tax benefits. Therefore, it is advisable to stay invested in a ULIP plan for at least a period of 5 years in order to claim deductions. However, if the policyholder was allowed with any deduction in the previous year, then it gets added to your income in the same year when you surrender your policy.

Now that you know all about the tax implications on the maturity benefits of ULIPs, what are you waiting for? Opt for a ULIP Policy provided by a credible company as they offer a host of options at an affordable rate. Investment in a ULIP Policy not only maximizes your gains but also allows tax benefits which makes it easier for you to save up more for a bright and carefree future.