Unit Linked Insurance Plans, also known as ULIP plans, include a number of advantageous features that can help you increase your wealth and protect your loved ones while you are away. A ULIP can help you achieve your goals, whether they be to save for retirement, your child’s higher education, or to buy a house.
What do you mean when you say a ULIP has maturity taxation?
The tax regulations governing your ULIP’s maturity advantages are referred to as ULIP maturity taxation. As of right now, Section 80C allows you to deduct the premiums you’ve paid for a ULIP. In accordance with the requirements of Section 10(10D) of the Income Tax Act of 1961, the payout you receive at the conclusion of the policy term is likewise tax-exempt. However, the following restrictions apply to these laws.
If you purchased a ULIP after April 1, 2012, you might only qualify for an income deduction under Section 80C if the premium payment is less than 10% of the claim payment.
You can get a concession on the amount equal to 10% of the entire sum assured if the premium exceeds that percentage.
If you purchased a ULIP prior to April 1, 2012, you might only be eligible for an income deduction under Section 80C if the premium amount is less than 20% of the claim amount.
You can take advantage of a deduction on the amount that is equal to 20% of the total sum guaranteed if the premium exceeds 20% of the claim amount. 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.
Currently, there are 2 tax regimes in India – new and old. To get the tax benefit you desire, choose the correct one after consulting an expert. You can opt for a regime change during the next financial year.
What guidelines apply to a ULIP’s maturity benefits?
The guidelines for the taxation of ULIP tax benefits on maturity are listed below:
- Your maturity benefits for each ULIP that was granted to you on or before February 1, 2021, are tax-free subject to the requirements of Section 10(10D) of the Income Tax Act of 1961. Regardless of the total premiums you pay for your policy or policies in any given year during the term of these policies, this is the case.
- The maturity benefits from a ULIP are tax-free subject to requirements under Section 10(10D) of the Income Tax Act of 1961 if it was granted to you on or after February 1, 2021, with annual premiums totalling less than 2.5 lakh for all of the years of the policy’s life.
- The maturity benefits from a ULIP are taxable if it was granted to you on or after February 1, 2021, with premiums totalling more than 2.5 lakh in any given year during the term of the policy. This is in accordance with the Income Tax Act of 1961’s fourth proviso, Section 10(10D).
- According to Section 10(10D) of the Income Tax Act of 1961, the following regulations apply if you have received numerous ULIPs on or after February 1, 2021:
- The maturity benefits obtained from each of these ULIPs will be tax-free subject to the conditions outlined in Section 10(10D) of the Income Tax Act of 1961 if the total annual premium for all of these ULIPs that are issued on or after February 1, 2021, is less than 2.5 lakh for all of the years during the tenure of all of these policies.
- If the combined total premium for all of the ULIPs that are issued on or after February 1, 2021, is more than 2.5 lakh in any given year during the term of the policy, those policies whose combined total annual premium is less than 2.5 lakh will provide tax-free maturity benefits subject to the conditions outlined in Section 10(10D) of The Income Tax Act, 1961. The maturity benefits on the remaining plans will be taxed.
- In accordance with the provisions outlined in Section 10(10D) of the Income Tax Act of 1961, the sum received under a ULIP in the event of the life assured’s passing away is tax-free.
ULIPs (Unit Linked Insurance Plans) can be a tax-efficient investment option for individuals who are looking for both insurance coverage and wealth creation and offer several ULIP tax benefits.
When it comes to taxes, ULIP plans offer many benefits, such as tax deductions under Section 80C of the Income Tax Act, 1961, tax-free maturity proceeds, and tax-free switches between funds.
It is important for individuals to carefully assess their investment goals, risk appetite, and tax planning requirements before investing in a ULIP. You can use a ULIP Calculator to estimate future returns and the value of a ULIP investment.