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FAQs on Taxation of ULIPs

Find answers to popular and frequently asked questions related to taxation on Unit-Linked Insurance Plans. Know more about taxes on ULIPs.

  • 5,895 Views | Updated on: Jan 10, 2024

ULIPs are a common mode of investment in today’s world, and they have completely revolutionized the way people think about investing.

With so many people leaning towards ULIP investments, it’s only reasonable to wonder what precisely a ULIP plan is and what benefits it provides.

To answer this primary ULIP question, ULIPs are among the safest and most efficient investment options for experienced and new investors.

It’s crucial to understand how ULIPs function since they feature one-of-a-kind investment structure and a 5-year statutory lock-in period. They’re a hybrid product that combines the benefits of both investment and insurance into one convenient bundle. A ULIP plan’s monthly contribution is split into two parts: the first half is used to pay for life insurance premiums, while the second half is used to invest in financial instruments such as shares, debt, or balanced funds. Finally, it’s worth mentioning that market conditions impact the performance of ULIP funds.

Now that you’ve understood ULIPs and their return benefits, it’s time to learn about the wonderful tax benefits and additional taxation for ULIP FAQ.

  • What are the ULIP Tax Benefits Under Section 80C?

Tax benefits under section 80C top the chart for ULIP FAQ. Under section 80C of the Income Tax Act, you can claim up to ₹1,50,000 from your ULIP plan premiums. However, the entire premium paid should be less than 10% of the amount guaranteed. For instance, if your ULIP’s total promised is ₹15 lakhs and the premium paid is less than ₹1.5 lakhs, you can claim the whole amount as a tax deduction under section 80C. However, if your premium is greater than 10%, such as ₹2 lakhs for an amount of ₹15 lakhs, your tax exemption will be limited to 10% or ₹1.5 lakhs.

  • What are the ULIP Tax Benefits Under Section 10(10D)?

Any payment made under ULIP, including any sum designated as a bonus on such insurance, is excluded under Section 10 (10D). However, no deduction shall be provided concerning the amount received under the policy if the payment for any year during the policy’s term surpasses 10% of the actual capital sum guaranteed. This is considered an ‘extra premium’ problem.

  • Do ULIPs also have GST Applicable?

There has been limited knowledge about the impact of the GST on financial investment instruments since its implementation, which is why it is also a crucial ULIP question to ask before purchasing. For example, the Unit Linked Insurance Plan (ULIP) has an 18% GST rate that applies to all cost items, including the insurance premium for the plan and fund management fees.

  • What is the Minimum Tax Exemption that can be Claimed Under ULIP?

This is also one of the most asked ULIP queries.

You can claim a tax deduction of 10% of the entire sum guaranteed, but the deduction will not exceed ₹1.5 lakh, even if your premiums are greater.

After going through all of the major ULIP FAQs and some of the most common ULIP queries, it is clear that this investment instrument is an outstanding choice that offers both big financial returns and substantial tax benefits.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

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.

Amit Raje
Reviewed By :
Prasad Pimple

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

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