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 Most of you prefer to invest in financial instruments especially the ones that offer tax-saving benefits. There are two primary reasons for doing so. One, it reduces the amount of income tax that are liable to pay on earnings. Second, it encourages to save and invest at regular intervals. There is a third reason too, which often people often tend to overlook or underestimate – that is, tax savings can create wealth.

You must understand that investment and savings are two driving factors behind wealth creation. As important it is to invest in funds, it is also imperative to save money. And, claiming tax deductions is one of the ways for doing the latter. Because, the money you save from tax deductions could be further invested into equity or other long term funds to grow your wealth.

ULIPs are among the top wealth creation tools, both from an investment as well as the savings point of view. They can grow your wealth at a safe and steady pace, taking into consideration various financial goals at different stages of your life.

Before understanding in depth how good tax savers ULIPs are, you should also have knowledge about various tax saving options.

Tax Saving Sections

Income Tax Section Options Deductable Amount
Section 80C & 80CCC• Public Provident Fund (PPF)
• Traditional Insurance Polices (Term and Endowment)
• Unit Linked Insurance Plans (ULIP) : Life & pension plans
• Equity Linked Savings Scheme (ELSS)
• Home Loans
• National Pension Scheme (NPS)
• Fixed Deposits (FD) and National Saving Certificates (NSC)
Up to a maximum of Rs1,50,000
Section 80DHealth Insurance
• Up to Rs. 25,000 for self, spouse and dependent children (Rs. 30,000 for if age above 60 years)
• An additional deduction up to Rs. 25,000 for parents below 60 years or Rs. 30,000 for parents above 60 years.
Section 80GDonations to charitable causes or institutionsSubject to terms and conditions
Section 80EEducational loan for higher studies for self, spouse or childrenInterest payable on loan

Now you already know that Section 80C/80CCC is the most popular section as it provides the maximum tax benefits. Let’s see how tax advantages on ULIPs can make a difference to your wealth.

  • The premium paid on ULIP investments is exempt from tax up to Rs. 1,50,000 subject to conditions of Section 80C
  • The maturity and death proceeds from ULIPs are also tax free subject to conditions of Section 10(10D).
  • You can boost your retirement savings with tax benefits on premiums paid subject to conditions of Section 80CCC and get tax free commutation amount as per Section 10(10A)
  • This means, that ULIPs are tax saving instruments in terms of investment, appreciation and maturity as compared to other options offering tax benefits

Other Section 80C Tax Saving Plans give only one or two benefits, but not all three simultaneously. Whereas in ULIPs, a part of your premium is invested as a life cover, while the rest is invested in market-lined equity and debt funds. In fact, you can say that ULIPs offer a threefold advantage – life insurance (protection), good long term returns (investment) and deductions from taxable income (savings). For example, an investment in ICICI Prudential Guaranteed Wealth Protector has the features that you would be ideally looking at in any good wealth plan:

  • Life cover
  • Better market-linked equity returns in the long term
  • Capital protection through an Assured Benefit
  • Tax-benefits

As an investor desiring to accumulate wealth, you should keep a long term investment and savings horizon in mind. Wealth creation calls for a goal based, disciplined and smart approach. Unit linked insurance plans can fit into wealth creation objective very aptly.

Disclaimer

Unlike traditional products, Unit linked insurance products are subject to market risk, which affect the Net Asset Values and the customer shall be responsible for his/her decision. The names of the Company, Product names or fund options do not indicate their quality or future guidance on returns. Funds do not offer guaranteed or assured returns. For more details on the risk factors, terms and conditions, please read the sales brochure carefully before concluding a sale.

The Tax write-up above is for general understanding and reference. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information. Tax laws are subject to amendments from time to time. ICICI Prudential Life Insurance Company Limited expressly disclaims any liability to any person, if tax benefits stated above are denied to the customer.L/II/1231/2015-16

About The Author

ICICI Prudential Life Insurance Company Limited is one of the leading life insurance companies in India. We provide insurance plans & policies that include a range of products like term insurance, ULIPs, tax saving plans and pension & retirement plans.

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