Tax planning is a significant component of financial planning. However, many taxpayers leave it to the last-minute priorities, which is not the right way to do it. One of the crucial steps of careful tax planning is selecting financial instruments, which vary from one individual to another. While some look for good returns as a selection parameter, others want lower risk. If you are on the return side, you should invest in a ULIP plan.
Tax on ULIP
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A Unit Linked Insurance Plan, commonly known as a ULIP plan, offers both life insurance protection and investment opportunity. By knowing what is ULIP in detail, you can create wealth and protect your family’s future financially by choosing from the best ULIP plans in India. It is easier to understand how ULIP plans work in comparison to various other types of life insurance policy. But when you look at this investment from the tax-saving side, it is crucial to know about the related capital gains tax.
Let’s dig further into this aspect of ULIP plans to help you invest carefully.
What is Capital Gains Tax for ULIPs?
As the name suggests, a capital gains tax means tax to be paid if you get investment value growth or ‘capital gains’ on selling the assets. Unlike many other investment instruments, capital gains tax is structured differently for ULIP plans.
One reason that attracts investors towards the best ULIP plans in India is their tax benefits. They are exempted from the capital gains tax or Long-Term Capital Gain (LTCG) tax as introduced in the Union Budget 2018. ULIP plan is the only market-linked instrument that is still exempted from LTCG tax.
If you want to invest in a financial safety net for your family while also getting good returns, choosing a ULIP would be a win-win situation for you. You can also benefit from many other features of a ULIP plan, such as fund switching, partial withdrawal, and top-ups. The premiums you pay for a ULIP is eligible for tax deduction under the Income Tax Act.
Here is how ULIP tax structure is defined for capital gains tax:
For Plans Bought After Apr 1, 2012:
Individuals who have purchased the best ULIP plans in India before this date can avail of tax deductions under Section 80C. Another condition added in this context is that the premium should be less than or equal to ten percent of the chosen sum assured.
For Plans Bought Before Apr 1, 2012:
If the ULIP plan is purchase before this date, one can avail of maximum tax deduction provided the ULIP premium is less than twenty percent of the sum assured.
The same structure is also applicable while calculating the tax benefits of ULIP plans on maturity or death of the life insured. It means the proceeds from a ULIP plan will be tax-exempted as per this structure.
Invest in ULIP Plans for These 4 Benefits
- Life Insurance Coverage
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With ULIPs, you get life cover coupled with the investment component. By choosing an adequate sum assured, you can create a financial cushion for your loved ones to fall back on if you are not around to provide for them. This will also give you peace of mind while you are alive, living the best moments of your life with them.
- Planning for Long Term Goals
When you buy a ULIP plan, the invested amount gets compounded over time, thus helping you plan to finance the long-term goals in life. These goals can be anything that matters to you, be it purchasing a new home, a vehicle, or planning for marriage.
- Portfolio Switching Flexibility
ULIP plans are designed in a way that the investor can switch the portfolio between equity and debt as per their knowledge of market analysis and risk appetite. The number of switches may be limited, depending on the insurance company you have selected for such investments.
Get LTCG Advantage with the Best ULIP Plans in India
As detailed above, a ULIP plan is a must-have instrument in your financial portfolio for various reasons, including LTCG advantage. Even if you are more concerned about the tax planning side, ULIP investment will benefit you. If you want to know the benefits of including ULIPs in your investment portfolio in quantifiable terms, you are advised to seek appropriate tax advice from professionals. Since the LTCG taxation factor is in favor of ULIPs, there is not much to worry about. You can also think of the ULIP taxation structure as a step from the Government to promote ULIP investments further.
Make sure you search for the best ULIP plans in India and go for the one that fulfils your needs adequately. Act smartly while picking financial instruments for your portfolio.
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