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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
ULIPs are an efficient financial tool for tax optimization while ensuring financial security. Under Section 80C, the premiums paid towards ULIPs qualify for deductions up to ₹1,50,000 per year. Additionally, the maturity proceeds and death benefits are tax-free under Section 10(10D). ULIP tax benefits also apply to partial withdrawals after a 5-year lock-in period. Investors can switch funds without tax liability, and even NRIs can claim ULIP tax benefits.
Understanding the ULIP tax benefits is crucial for investors seeking to optimize their financial planning while simultaneously securing insurance coverage. With its unique combination of investment opportunities and insurance protection, ULIPs offer a range of tax advantages under Indian tax laws. Let us see what ULIP plan tax benefits you can avail yourself of:
The premium paid towards a ULIP qualifies for a tax deduction of up to ₹1,50,000 under Section 80C of the Income Tax Act, 1961. However, this deduction is subject to conditions depending on the policy purchase date.
| Criteria | ULIP purchased after 1 April 2012 | ULIP purchased before 1 April 2012 |
|---|---|---|
| Yearly premium less than threshold | If the yearly premium is less than 10% of the sum assured, you can claim a tax deduction of up to ₹1,50,000 under Section 80C. | If the yearly premium is less than 20% of the sum assured, you can claim a tax deduction of up to ₹1,50,000 under Section 80C. |
| Yearly premium more than threshold | If the yearly premium is more than 10% of the sum assured, you can claim a tax deduction of only up to 10% of the sum assured. | If the yearly premium is more than 20% of the sum assured, you can claim a tax deduction of only up to 20% of the sum assured. |
For instance, you pay a premium of ₹2,00,000 for a policy purchased after April 2012, with a sum assured of ₹12,00,000. As the premium exceeds 10% of the sum assured (₹1,20,000), the deduction amount will be limited to ₹1 20,000.
Maturity refers to completing your policy. Under ULIP tax benefits, you get the sum assured or the entire value of the unit-linked investments (whichever is higher) at maturity. This payout is exempted from tax under Section 10(10D) of the Income Tax Act, 1961, as per the following conditions:
| Criteria | ULIP purchased between April 2012 and February 2021 | ULIP purchased after February 2021 |
|---|---|---|
| Maturity Proceeds - Tax Exemption | The maturity proceeds are tax-free if the premium does not exceed 10% of the sum assured. | The maturity proceeds are tax-free if the premium does not exceed ₹2.5 lakh in a year. |
The ULIP returns are subject to capital gains tax if the premium exceeds the above-discussed thresholds.
You can make tax-free partial withdrawals after completing the mandatory lock-in period of 5 years of your ULIP. However, the withdrawal amount cannot exceed 20% of the total sum assured value. This helps avoid tax and allows you to make partial withdrawals for different financial needs, such as marriage, a child’s education, retirement, home purchase, etc. Hence, you have the freedom to withdraw funds from time to time.
The death benefit of a ULIP that is payable to your nominee/family members is not taxable. This tax benefit in ULIP includes the total sum assured and the returns generated through market-linked investments under the plan.
With a ULIP, you can make top-up investments or cash additions after the 5-year lock-in period. These top-ups are eligible for tax deductions under Section 80C and Section 10(10) D of the Income Tax Act, 1961. However, the premium amount must not exceed 10% of the sum assured.
Long-term tax benefits are among the compelling reasons why ULIPs continue to attract investors seeking to optimize their financial portfolios. ULIPs offer investors the opportunity for long-term wealth creation through market-linked investments while enjoying tax benefits at various stages of the policy lifecycle.
Unlike traditional term insurance plans that focus only on protection, ULIPs provide both wealth creation and financial security. The premiums paid are eligible for tax deductions under Section 80C, while the maturity benefits remain tax-free under Section 10(10D). Additionally, a ULIP plan ensures that the nominee receives a tax-exempt life cover payout in the unfortunate event of the policyholder’s demise.
ULIPs offer the option to switch between different funds based on market conditions or the policyholder’s investment goals. The switching between funds in ULIPs is tax-free and does not attract any tax liability.
Non-resident Indians (NRIs) can also avail of the ULIP tax benefits. The premium paid by NRIs towards ULIPs is eligible for tax deduction under Section 80C of the Income Tax Act, 1961. The maturity proceeds of ULIPs are also tax-free for NRIs.
From the flexibility to choose investment options to tax advantages and the provision of insurance coverage, ULIPs offer a comprehensive solution for individuals striving to secure their financial future. Let us explore the features and ULIP tax benefits:
ULIPs provide the dual benefit of insurance coverage and investment growth in a single integrated plan. This allows policyholders to protect their loved ones while simultaneously building wealth over time.
These plans offer flexibility by allowing policyholders to select from a range of funds based on their risk appetite and financial goals. For instance, risk-averse individuals can prioritize debt over equity funds. Additionally, they can switch between funds to align with changing market conditions or personal preferences.
ULIPs offer the option for partial withdrawals. Policyholders can thus access a portion of their invested funds in times of financial need without surrendering the entire policy.
Policyholders have the flexibility to redirect their future premiums towards different fund options within the ULIP, allowing for adjustments in investment strategy as per changing financial objectives or market dynamics.
Upon maturity of the ULIP policy, the policyholder is entitled to receive the fund value, which comprises the accumulated investment returns over the policy term, providing a lump sum payout to fulfil financial goals or needs.
In the unfortunate event of the policyholder’s demise during the policy term, ULIPs provide a death benefit to the nominee, which typically includes the higher sum assured or the fund value, ensuring financial protection for the family.
ULIP is a perfect bridge between high-risk assets like mutual funds and simple life insurance protection products like pure-term plans. It gives you high returns, life coverage, and the ULIP tax benefit. Moreover, ULIP is a highly flexible modern insurance plan that allows you to control your investment and funds. You are free to invest in the market as per your risk appetite and, at the same time, have insurance security. Additionally, the ULIP tax benefits are something that, as an investor, you cannot ignore.
However, you must ensure that you have analyzed your long-term financial goals and invested accordingly into ULIP. Also, you must understand that the longer you stay invested in ULIP, the higher returns you get. So, if you are planning to save for a house, say 15 years from now, you must start investing in ULIP now.
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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