Tax saving can be an essential part of your financial planning. Although you might plan your finances in advance, you might tend to overlook the tax payments. Whether you like it or not, tax payment can be an inevitable part of your life after you start earning.
Since the fear of taxes prevails amongst many of you, the income tax department has introduced tax-saving investment tools to reduce your tax liability. Although there are numerous tax-saving options like Equity Linked Savings Scheme (ELSS), Public Provident Fund (PFF), and so on, you should choose a Unit Linked Insurance Plan (ULIP) to avail its dual tax benefits. A ULIP plan is a dual-benefit financial product, which can provide tax benefits as well as the mix of investment and insurance under a single integrated plan.
Before purchasing a ULIP plan, let’s try understanding the two essential tax-saving benefits offered on the following:
- Premium
Premium is an essential element of your ULIP policy. Since it can offer you with ULIP insurance coverage, you should pay your premiums regularly to your insurer. The premiums that you pay are directed in two ways:
- Coverage
The ULIP insurance part of your policy can provide life cover to protect you from the eventualities of life. Hence, a major proportion of your premium goes towards the provision of your coverage.
- Funds
A ULIP policy can allow you to select between equity funds and debt funds based on your risk appetite. Since a ULIP policy provides two different types of funds, the remaining part of your premium can be channelled towards life insurance.
Under a ULIP policy, the premiums can be eligible for tax exemptions in accordance with Section 80C of the Income Tax Act, 1961. As a policyholder, you can receive a tax deduction up to Rs. 1,50,000 on your taxable income. If you wish to receive tax benefits, you should fulfil the following the conditions mentioned below:
- The premium should either be less or equal to 10% of the sum assured value. For instance, if your annual premium amount is more than Rs. 1,50,000 and your sum assured amount is Rs. 50,00,000, you can be eligible to claim a deduction under Section 80C. The tax deduction can be applied if the ULIP policy is purchased after April 1, 2012. After April 1, 2012, you can claim a maximum tax deduction if your premium amount is less or equal to 20% of the sum assured.
- Maturity proceeds
ULIP insurance can provide financial assistance to your loved ones in your absence. Since its primary aim is to secure your family financially, it can provide a payout to them after your demise. As the nominees, the members of your family can decide whether they want to receive the money every month or every year.
Once the ULIP plan matures, you can receive an assured benefit or the whole value of your investment, whichever is higher. The maturity payout can be tax-free, as stated under Section 10(10D) of the Income Tax Act, 1961.
To sum up, the ULIP tax benefits can not only help you to maximize your tax-saving limit but also reduce your tax burden. A ULIP policy is a long-term investment, which allows you to reap maximum benefits to save money. In addition to this, you can receive the triple benefits of life coverage, high returns, and tax savings with less risk of loss and other complexities.
