ULIP A Viable Tax Saving Option – Know Why
Technology has made saving money on taxes more convenient than ever, and you may purchase insurance online at your convenience. Make careful to plan your finances before buying insurance; the first step in financial planning is to start saving money. In addition, tax planning is crucial for achieving both short- and long-term financial objectives. In addition to lowering tax obligations, it facilitates saving for several other goals individuals establish at various life stages. It would be best if you started your financial planning at the beginning of the fiscal year to do an excellent job of tax planning. You can use a ULIP Calculator to estimate future returns and the value of a ULIP investment.
The unit-linked insurance plan, or ULIP, is one of the finest ways to save taxes because it offers the advantages of insurance and investing. This plan combines the finest possible levels of protection, returns, and tax savings. Your premium is covered by a small portion of the money, while the balance is put in mutual funds. Sections 80C and 10(10D) of the Income Tax Act of 1961 give tax exemption. You can receive ULIP tax benefits from a ULIP several times, such as when paying premiums, switching from debt to equity, or receiving maturity benefits. In addition, the program provides tax-free death benefits. *The insurer provides all savings per the IRDAI-approved insurance plan. Standard T&C applies.
When saving for your long-term financial goals, such as kid education/marriage, retirement, etc., ULIP plans are an excellent choice. Also, this long-term investment solution allows investors to swap according to their financial objectives. Check out these more justifications for why ULIPs are among the top investment vehicles for tax savings:
- To prepare for future financial objectives like marriage, a child’s schooling, a house purchase, etc., one can invest in ULIPs. Because ULIPs have a minimum lock-in term of 5 years, it is easier for policyholders to perform goal-centric financial planning. Only when the lock-in period has passed are partial withdrawals permitted.
- Top-up your investments: ULIPs also lets you top-up your investments with more money. The top-up function enables policyholders to add funds to their policies. And under section 80C of the Income Tax Act, these top-ups are deductible and exempt.
- Free withdrawals from taxes Under the insurance, death benefits are available. The policyholder receives an assured benefit upon maturity, exempt from taxation under section 10D of the Income Tax Act of 1961. The policyholder gets secure help upon maturity, exempt from taxation under section 10D of the Income Tax Act of 1961. ULIPs also provide excellent tax advantages for withdrawals that may be made in situations like partial withdrawal, policy maturity, and policyholder demise.
- Tax exemption on premium payments – In the case of ULIP plans, the insured person is entitled to a tax exemption under Section 80C of the Income Tax Act of 1961 on the total premium payments. This indicates that you can deduct the premiums you paid for your ULIP up to a maximum of 1.5 lacks. Funds, including stock, debt, and money market instruments, are purchased using the money deposited in ULIPs.
Overall, investing in ULIPs is a sensible choice. A combination plan, such as a ULIP, enables you to take advantage of several benefits, including tax savings, life insurance and assured returns with no risk. The estimated value of your ULIP investment can be calculated using a ULIP calculator based on the premiums, tenures, and other information you enter.
* There are two tax regimes in India – new and old. Choose the correct one after consulting an expert to get the tax benefit you desire. You can opt for a regime change during the next financial year.
ULIPs are a versatile and flexible investment option that offers tax benefits while allowing investors to participate in the market’s potential for growth. While traditional tax-saving schemes such as Public Provident Fund (PPF) and National Savings Certificate (NSC) provide guaranteed returns, they may not offer the same opportunity for higher returns as ULIPs. ULIPs invest in various asset classes, such as equity, debt, and balanced funds, providing investors with the potential for better returns.
In addition to the ULIP tax benefits, ULIPs offer insurance coverage, which provides valuable protection to the investor’s family in any unforeseen circumstances. ULIPs offer the flexibility to choose the premium amount, payment frequency, and level of insurance coverage, making them an attractive option for investors with varying needs and preferences.
However, it is important to note that ULIPs come with certain charges, such as administrative, fund management, and mortality charges. These charges can reduce the overall returns on the investment and should be evaluated before investing in a ULIP.