Why Is ULIP A Viable Tax Saving Option

Technology has made it easier for us to save money on our taxes. Be careful to plan your finances before purchasing insurance; the first step in financial planning is to start saving money. In addition, tax planning is crucial for achieving both short- and long-term financial objectives. In addition to lowering tax obligations, it facilitates saving for a number of additional objectives that individuals establish for themselves at various stages of life.

The unit-linked insurance plan, or ULIP, is regarded as one of the finest ways to save taxes because it offers the advantages of both insurance and investing. The strategy combines the finest possible levels of protection, returns, and tax savings. Sections 80C and 10(10D) of the Income Tax Act of 1961 give tax exemption. You can receive tax benefits from a ULIP several times, such as when paying premiums, switching from debt to equity, or receiving maturity benefits. In addition, the programme provides tax-free death benefits.

When it comes to saving for your long-term financial goals, such as kid education/marriage, retirement, etc.,ULIP plans seem to be an excellent choice. Additionally, this long-term investment solution allows investors to swap according to their financial objectives.

Check out these more justifications for why ULIPs are among the top investment vehicles for tax savings:

  • Helps with goal-centric planning – Because ULIPs have a minimum lock-in term of 5 years, it makes it easier for policyholders to perform goal-centric financial planning. In order to prepare for future financial objectives like marriage and a child’s schooling, one can invest in ULIPs. Only when the lock-in period has passed are partial withdrawals permitted. The ULIP calculator is a simple tool that you can use to predict the return you might get at maturity by entering a few details.
  • Top-up your investments – ULIPs also let you top-up your investments with more money. Simply put, the top-up function enables policyholders to add more funds to their policies. And under section 80C of the Income Tax Act, these top-ups are both deductible and exempt.
  • Tax-free withdrawals – Under the insurance, there are also death benefits available. ULIPs also provide excellent ULIP tax benefits for withdrawals that may be made in situations like partial withdrawal, policy maturity, and policyholder demise. The policyholder receives an assured benefit upon maturity that is exempt from taxation under section 10(10D) of the Income Tax Act of 1961.
  • Tax exemption on premium payments – In the case of ULIPs, the insured person is entitled to a tax exemption under Section 80C of the Income Tax Act of 1961 on the total amount of premium payments. This indicates that you are able to deduct the premiums you paid for your ULIP, up to a maximum of 1.5 lakh. Funds, including stock, debt, and money market instruments, are purchased using the money deposited in ULIPs.
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The government rule that ULIP plans be free from LTCG (Long Term Capital Gains) taxation has added to the benefits of ULIPs in terms of tax savings. Any gains obtained from capital investments in ULIPs are, therefore, tax-free. This function has expanded the range of tax advantages offered by ULIP investment.

Benefits of Investments in ULIPs

  1. Financial self-sufficiency

For retirement planning, investing in a ULIP can provide you with financial security during your golden years. When you do not have a reliable source of income, it is imperative to secure a reservation for the future. You can use a ULIP calculator to estimate future returns and the value of a ULIP investment.

  • Life insurance

In times of need, the life coverage offered by ULIPs can protect your loved ones. With a ULIP, you may be confident that your family will be safeguarded even when you are not around.

  • Flexible investment options

ULIPs are versatile investment instruments because they let the policyholder select the funds they want to use for investments. Within the policy’s duration, you can change funds.

  • Tax advantages

Investors can lessen the impact on their income thanks to the taxability of unit-linked insurance plans. Your standard living expenditures won’t increase as a result of your investment decision and availing of these ULIP tax benefits.

The tax benefits mentioned in the article may not apply if you opt for the new tax regime since many tax exemptions and deductions have been scrapped within the new regime. They are also subject to any changes in the law.

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A combination plan, such as a ULIP, enables you to take advantage of a number of advantages, including tax savings, life insurance and assured returns with no risk.

Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale.

Praveen Saraswat
Praveen was born in India. He began writing in 2018, he lives in Agara. He has contributed lots of articles to Scoopearth and another website and the first time he published an article at Scoopearth