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In this policy, the investment risk in the investment portfolio is borne by the policyholder.
Kotak e-Invest
Features
Ref. No. KLI/22-23/E-BB/492
ULIP taxation refers to the tax rules on the maturity benefits of your ULIP. Read to know the new tax norms for capital gain on a unit-linked insurance plan (ULIP).
Unit-Linked Insurance Plans, also known as ULIPs, are investment products that offer insurance coverage along with the opportunity to invest in various market-linked funds. As the name suggests, the investment component of ULIPs is linked to the performance of underlying assets such as equity shares, bonds, or money market instruments.
Tax norms for capital gains on ULIPs
ULIPs have become a popular investment choice in recent years due to their dual benefits of life insurance coverage and the possibility of earning returns from market-linked investments. However, it is important for ULIP investors to understand the tax implications of their investment.
The returns from ULIPs are subject to ULIP taxation, just like any other investment instrument. The tax treatment of ULIP returns depends on the duration of the investment. If the ULIP policy is held for less than three years, the returns are treated as short-term capital gains and are taxed as per the income tax slab of the investor.
On the other hand, if the policy is held for more than three years, the returns are treated as long-term capital gains and are taxed at 10% without indexation or 20% with indexation.
ULIP tax benefits are offered to investors under section 80C of the Income Tax Act. The premium paid towards a ULIP policy is eligible for a tax deduction of up to ₹1.5 lakhs in a financial year. This means that the investor can reduce their taxable income by the amount of premium paid, effectively reducing their tax liability.
The ULIP capital gains tax arising from the sale of units is subject to ULIP taxation. The tax implications of capital gains depend on the duration of the investment and the applicable tax slab of the investor. If the ULIP units are sold before the completion of three years, the capital gains are treated as short-term capital gains and are taxed as per the applicable tax slab.
If the units are sold after three years, the capital gains are treated as long-term capital gains and are taxed at 10% without indexation or 20% with indexation.
As an investor, it is always important to understand the tax implications of the investments you make.
However, when it comes to taxes, ULIPs have some specific rules and regulations that investors need to be aware of.
Moreover, ULIPs have a lock-in period of five years, during which investors cannot make any changes to their investments. This means that investors cannot switch to a tax-efficient investment option even if they want to, which further eliminates the possibility of tax arbitrage.
ULIPs are an attractive investment option due to the combination of insurance coverage and market-linked returns. However, it is important for investors to understand the ULIP tax benefits and implications of their investment. By being aware of the tax norms for capital gains on ULIPs, investors can make informed decisions and effectively plan their finances.
Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.
Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors
In this policy, the investment risk in the investment portfolio is borne by the policyholder.
Kotak e-Invest
Features
Ref. No. KLI/22-23/E-BB/521
The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The content has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Further customer is the advised to go through the sales brochure before conducting any sale. Above illustrations are only for understanding, it is not directly or indirectly related to the performance of any product or plans of Kotak Life.
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