Tax benefits with ULIPS
Unit Linked Insurance Plans or ULIPs are a unique investment product. Along with investment in ‘units’, it also comes with life insurance i.e. it provides life cover to the person taking the policy. ULIPs offer tax benefits at the time of investment as well as on maturity.
Tax Benefit on investment – money invested in ULIP can be claimed as a deduction under section 80C (life insurance) or 80CCC (pension). A maximum of Rs 1,50,000 is allowed under section 80C/ 80CCC. Deduction is available on life insurance ULIPS under Section 80C, up to 10% of the sum assured or annual premium whichever is lower subject to a ceiling of Rs. 1,50,000. Deduction towards premium paid for ULIP retirement under section 80CCC is Rs. 1,50,000. Further the overall limit of section 80C/80CCC/80CCD(1) is Rs. 1,50,000. Of course you can invest a higher amount, but the deduction will be limited to Rs 1,50,000.
As per the income tax act ‘any sum paid to keep in force’ a policy can be claimed as a deduction. So pick the entire amount paid by you for Section 80C deduction. Include service tax and any other charges which have been collected by the insurer.
Life insurance ULIP must be kept in force for 2 years to claim deduction u/s 80C – Do remember to regularly pay the premiums and continue your ULIP plan to avail tax benefits. If the ULIP is discontinued before 2 years, tax benefits u/s 80C will not be allowed. Any deduction allowed in the previous years will be added back to your income in the year in which ULIP is closed.
Tax benefit on partial withdrawal / Maturity – Under section 10(10D), for life insurance ULIP policy where the premium payable to the sum assured does not exceed 10%, the amount received on partial withdrawal or maturity is exempt from tax. (For policies purchased before 1st April 2012, the premium to sum assured should not exceed 20% for the proceeds to be tax free).
If the above ratio exceeds the prescribed limit anytime during the term of the policy, future proceeds of the policy will be taxable, except in case of death, under Income from other sources in the income tax return. This is taxable at the slab rate applicable to you.
Tax benefit under a retirement ULIP on commutation – Under section 10(10A), commutation is tax free. Surrender or pension received will be taxable.
ULIPs bring twin benefits of tax saving at the time of investment & maturity as well as life insurance or retirement benefits.
This article is by ClearTax (www.cleartax.in), where Individuals and Businesses can e-File their I-T Returns online.
Tax disclaimer: Please note that 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 benefits/savings are subject to conditions of Section 80C, 80CCC, 80CCE, 10(10A), 10(10D) and other provisions of the Income Tax Act, 1961. 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.
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.L/II/1244/2015-16