Is The ULIP Policy Surrender Value Taxable?

A ULIP (Unit Linked Insurance Plan) is a great financial tool to invest in as it has dual benefits. It has two parts. The first is a life cover to secure your family's future, and the other is investing in your choice of funds. When the policy matures, you can withdraw the funds to fulfil financial goals, like buying a house, covering retirement expenses, etc. You can also create a structured payout for a few years post maturity. This can help fulfil your small goals in life. Another advantage of investing in the scheme is the option to make partial withdrawals in an emergency.

What is the ULIP Scheme?

ULIP plans in India are a unique financial tool that helps you invest your money in equity, debt, or a combination of both, thus allowing you to build wealth over time. They also have an added advantage of a life cover to financially secure the future of your loved ones in case of an unforeseen event.

What are the Taxation Rules for a ULIP?

Premiums paid towards a ULIP are deductible under Section 80C up to a limit of 1.5 lakh per year. The maturity amount is also tax-free under Section 10 (10D) for the beneficiary. However, if the premium paid exceeds the stipulated limitations, there is no tax exemption on the paid premiums. These are the rules that apply to the tax on ULIPs.

What Does Surrendering the Policy Mean?

If you want to stop investing in the policy, you can surrender it before its maturity. This is done to receive the net asset value of the unit-linked policy in cash.

When Can You Surrender the Plan?

You can surrender your ULIP scheme whenever you wish to. However, there are several points to consider if you want to surrender your policy before the maturity date:

• You will receive the surrender value only if you surrender after five years from the initiation of the policy.
• No compensation is received for the fund's value upon surrender.
• Discontinuance charges may be imposed.

Thus, it is advisable only to not surrender your policy unless absolutely necessary and invest in it till the maturity date. This will help you minimize the loss and maximise your return.

Is the Surrender Value of ULIP Taxable?

There can be two major scenarios of surrendering your ULIP. Let's discuss them individually:

• Taxability on a ULIP after the lock-in period

  There are no additional charges if you surrender your policy after the completion of the lock-in period. Also, the taxability on ULIP post its maturity is zero. So, the entire surrender amount you receive is tax-free.

• Taxability on ULIP before maturity/during the lock-in period

  ULIPs have a five-year lock-in period. If you surrender the policy during this time, the surrender value will be accounted for as your income and taxed according to your tax slab. Therefore, you will have to pay taxes accordingly.

Note: TDS (Tax Deducted at Source) will also apply to the surrender value.

Can You Bring a Surrendered Policy Back to Life?

It is possible to revive a surrendered policy before the lock-in period expires, but this needs to be done within two years of surrender.

What are the Benefits of Investing in a ULIP?

There are several ULIP benefits. Here are a few for you to consider:

• Flexible in changing the invested amount: It gives you the advantage of adding a top-up amount over your existing invested amount, thus maximizing your return.
• Flexible in choosing your fund: You can select the fund you want to invest in according to your risk appetite. You can either invest in equity or debt funds or a combination of both.
• Long-term Investment: The money you put in a ULIP scheme is compounded over time. Hence, you can earn returns over the long term and be financially secure for life.

Conclusion

A ULIP is perfect for anyone looking for long-term investment and a life insurance cover. It can also help you to save a significant amount of tax. You can consider investing in a ULIP scheme if you want the benefits of investment, tax savings, and life protection, all under a single plan. Visit now to know more about term insurance, term plan, wealth plan, retirement plan , and long term savings.

To Know more about term plan, term insurance visit PNB MetLife website.

Disclaimer:
The aforesaid article presents the view or 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 incurred by the reader for taking any decisions based on the contents and information given in article. Please consult your financial advisor/ insurance advisor/ before making any decision.

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