Are ULIP Maturity Benefits Taxable?

It is essential to invest in financial instruments to grow your wealth and secure your monetary well-being. While searching for such options, many people look for investment avenues that can deliver guaranteed and risk-free returns. Out of the many alternatives available in the market, a Unit-Linked Insurance Plan (ULIP) is one of the most popular investment instruments. ULIP offers various advantages due to which it has emerged as a promising investment option among investors. If you are looking for the answer toWhat is ULIP policy, then let us guide you about its essential aspects.

ULIP is a unique type of insurance plan that provides the dual benefit of life insurance and investment. When you pay the premiums for ULIP, the insurer invests part of your premium in equity, debt, or a combination of both funds. Before investing in such a plan, you must have a clear idea about the various charges associated with it. Premium allocation charges, mortality charges, fund management charges, administration charges, and partial withdrawal charges are some prominent ULIP charges that you would incur in ULIPs.

Even though there are many costs connected with ULIP, it has the potential to offer attractive returns on investment as compared to other products. To maximize the returns on your investment, it is advisable to stay invested with a long-term perspective of ten to 15 years. A ULIP is an ideal tax-saving instrument. Here are the tax benefits offered by ULIPs:


  • Tax advantage under Section 80C 


According to Section 80C of the Income Tax Act 1961, the policy’s premium is exempt from tax. You are eligible for a maximum deduction of INR 1.5 lakh per annum.

However, to claim this deduction, you need to meet the following criteria:

  1. Tax exemption on premium for ULIP purchased after 1st April 2012

If you have bought the ULIP later than 1st April 2012, the policy’s premium should be less than or equal to 10 percent of the sum assured. For example, if the sum assured is of INR 1 crore, and if the premium you are paying towards the policy exceeds the permissible limit of INR 1.5 lakh per annum, then you can claim only a deduction up to INR 1.5 lakh. 

  1. Tax benefits on premium for ULIP acquired before 1st April 2012

If you have invested in the ULIP earlier than 1st April 2012, then you are eligible for a tax exemption only if the policy’s premium is equal to or less than 20% of the sum assured.


  • Tax deduction on maturity 


The amount that you receive on maturity is tax-free under Section 10(10D) of the Income Tax Act, 1961. However, even in this case, the two conditions that are applicable to the tax benefit Section 80C, apply here as well. 

Moreover, to qualify for all these ULIP tax benefitsyou must at least stay invested until the mandatory lock-in period of five years. If you surrender your policy or stop paying the premium before this duration, you cannot claim the tax deductions mentioned above. Any tax exemptions permitted in the previous years are added to your income in the year when you terminated the policy. 

As ULIP provides a blend of investment and insurance, it is one of the go-to financial instruments today. Besides the tax benefits on maturity, ULIP provides various advantages like high returns, flexibility to switch from one fund to another, and different premium payment options. Additionally, it encourages investment discipline by enabling you to save regularly and gives you the feasibility to invest in your preferred fund. Therefore, it is advisable to include ULIP in your financial portfolio. 

Start jotting down your life goals and invest in a suitable ULIP to accomplish them. Apart from meeting your financial aspirations, ULIP can ensure the monetary security of your loved ones in case of an untoward incident. So, without any delay, compare ULIPs online and pick an appropriate one at the earliest. 


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