Are you considering investing your hard-earned money in the unit link insurance plans? ULIP plans facilitate many beneficial features that can help you increase your funds while securing your loved ones. Whether you want to save to fund your child’s education, purchase your dream home, or retire comfortably, a ULIP plan can help meet all your financial goals.
But to make informed investments in these plans, you should be aware of the ulip taxation. Many newbie investors might not know that tax laws for life insurance, especially ULIPS, like Mera Wealth Plan, can affect the payout you are eligible to receive on the ULIP maturity. Knowing whether your payout is taxable or not and under what conditions can facilitate a smoother experience with your ULIP investments.
This article will provide a quick overview of taxation rules of unit linked insurance plans, helping you adhere to tax regulations on ULIP maturity while earning maximum returns.
The ulip tax on maturity refers to the taxation rules applied to the invested funds when your ULIP plan is matured or ends. Whether the funds you paid out of a ULIP plan are taxable or not upon maturity depends on the rules specified under the Income Tax Act of 1961.
For instance, the payout you receive on the maturity of ULIP plans is eligible for the ulip tax exemption if certain conditions outlined in section 10(10D) of Income Tax are met. If your annual premium payments are more than a specific percentage of the sum assured, the funds you receive at maturity might get taxed. Also, the applicability of the tax on the ULIP maturity also depends on when the plan was issued.
When buying the ULIP plan after April 1, 2012, and before February 1, 2021, you can avail of the income tax deduction under section 80C if the premium is not more than 10% of the sum assured.
On the other hand, if the premium is above 10% of the sum assured, the policyholder can avail of the tax deduction on the amount equal to 10% of the sum assured.
Policyholders can avail of deductions on taxes under section 80C when the premium on Ulip plans is less than 20% of the sum assured. But when the premium increases more than 20% of the sum assured, the tax will be deducted on the amount equal to 20% of the sum assured.
Policyholders are eligible for the ulip 2.5 lakh tax exemption under Section 10(10D) when the policy has been issued on or after February 1 2021. The condition is that the aggregate premium a policyholder receives on a ULIP policy shouldn’t exceed 2.5 lakhs INR in any given year of the policy’s tenure.
This ulip tax benefit also applies on the maturity of multiple ULP policies that policyholders have acquired on or after February 1, 2021.
If the total premium for a single or multiple ULIP plan exceeds 2.5 lakhs INR in any fiscal year during the policy’s tenure, the maturity amount will be taxed as per the current law. Moreover, any profits a policyholder makes from these policies should be classified as long-term capital gains, depending on what assets have been used.
You should know that any death benefit payout received by the policy nominee will be exempted from tax under Section 10(10D) of the Income Tax Act.
Are you wondering whether there is any tax on ulip capital gains? The tax on long-term capital gains is applied to ULIP policies in the same way it does to each equity-oriented investment. The rate at which tax is levied on the long-term capital gains from ULIP can be up to 10%. But, these taxes are not withheld upon the demise of the policyholder.
This table will breakdown the taxability of ulip capital gains on maturity:
| Capital Gains | Period of Holding | Percentage of Tax Levied |
|---|---|---|
| Long-term capital gains (Equity) | More than 12 months | 10% on returns exceeding 1 lakh INR |
| Short-term capital gains (Equity) | 12 months or less | 15% on overall gains |
| Long-term capital gains (Debt) | More than 36 months | 20% on overall gains |
| Short--term capital gains (Debt) | 36 months or less | At the applicable rate |
Under the Finance Act of 2021, the new provisions have been added to Section 10(10D), which came into force as of February 1, 2021.
As a result, now the below-discussed situations apply to specific ULIP policies:
If the insurance premiums are 2.5 lakhs INR or more in aggregate for all the ULIP plans for any previous year, the policyholder will have to pay taxes on the gain amount upon maturity.
When investing in the ULIP plans, “is ulip tax free” is the most common question asked by investors. Tax exemptions on the unit linked insurance plans can be availed of under certain conditions specified by the Income Tax Act 1961.
Looking for the right ULIP plans to invest your funds in and avail of tax benefits? The PNB Unit Linked Insurance Plan is a suitable investment policy for building wealth.
Yes, 18% of GST, i.e. goods and services tax, applies to the ULIP charges.
ULIP plan usually has a lock-in period of five years, and the deduction will only be applicable for the taxpayer if he has paid the premium for all five years.
There is no minimum amount that policyholders can claim as a tax exemption under a ULIP plan. But, under Section 80 of the Income Tax Act, 1961, one can claim a maximum tax deduction of at most 1.5 lakh INR in a financial year.
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Piyush Kataria, SEO Manager at PNB MetLife, is a seasoned digital marketing strategist with over a decade of experience in optimizing websites for search engines. His expertise extends to keyword research, content strategy, technical SEO, and link building, all of which have been instrumental in driving organic traffic growth at PNB MetLife. With a strong foundation in life insurance, Piyush leverages his industry knowledge to create targeted and effective SEO campaigns.
Sakshi Malhotra is a seasoned marketing professional associated with the Life Insurance industry since 2007. At PNB MetLife, she heads Digital Marketing and Direct to Customer line of business. She is responsible for driving effective customer engagement through the company’s website and social media channels. In addition, she drives customer online buying journeys to help them buy the right product.
Disclaimer:
The aforesaid article presents the view of an independent writer who is an expert on financial and insurance matters. PNB MetLife India Insurance Co. Ltd. doesn’t influence or support views of the writer of the article in any way. The article is informative in nature and PNB MetLife and/ or the writer of the article shall not be responsible for any direct/ indirect loss or liability or medical complications incurred by the reader for taking any decisions based on the contents and information given in article. Please consult your financial advisor/ insurance advisor/ health advisor before making any decision.
PNB MetLife India Insurance Company Limited
Registered office address: Unit No. 701, 702 & 703, 7th Floor, West Wing, Raheja Towers, 26/27 M G Road, Bangalore -560001, Karnataka
IRDAI Registration number 117 | CIN U66010KA2001PLC028883
For more details on risk factors, please read the sales brochure and the terms and conditions of the policy, carefully before concluding the sale.
Tax benefits are as per the Income Tax Act, 1961, & are subject to amendments made thereto from time to time. Please consult your tax consultant for more details.
Goods and Services Tax (GST) shall be levied as per prevailing tax laws which are subject to change from time to time.
The marks "PNB" and "MetLife" are registered trademarks of Punjab National Bank and Metropolitan Life Insurance Company, respectively. PNB MetLife India Insurance Company Limited is a licensed user of these marks.
Call us Toll-free at 1-800-425-6969, Website: www.pnbmetlife.com, Email: indiaservice@pnbmetlife.co.in or Write to us: 1st Floor, Techniplex -1, Techniplex Complex, Off Veer Savarkar Flyover, Goregaon (West), Mumbai – 400062, Maharashtra.
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