Tax Benefit on Premiums

Premiums paid towards a ULIP qualify for a tax deduction under Section 80C of the Income Tax Act, 1961. This allows you to reduce your taxable income, potentially lowering your tax liability.

The maximum deduction under Section 80C is currently ₹1.5 lakh per financial year. This limit applies to the cumulative amount invested in various eligible instruments, including ULIPs.

Important Conditions for Tax Benefit on Premiums:

• The ULIP policy term must be at least 5 years to qualify for a tax deduction under Section 80C.
• This benefit applies to regular premium payments only. Premiums paid as a single lump sum are not eligible for tax deduction.

Taxation on Maturity

The tax treatment on the maturity benefit of a ULIP depends on various factors:

• If the policy term is more than 5 years and the annual premium is less than 10% of the sum assured (purchased before April 1, 2012) or less than 10% of the death benefit (purchased between April 1, 2012, and February 1, 2021), the entire maturity amount (including investment returns) is tax-free under Section 10(10D) of the Income Tax Act.
• If the policy term is more than 5 years and the annual premium is more than 10% of the sum assured (purchased before April 1, 2012) or more than 10% of the death benefit (purchased between April 1, 2012, and February 1, 2021), only the death benefit is tax-free. The investment portion is taxed as long-term capital gains after considering the cost of investment and indexation benefits.
• ULIPs purchased after February 1, 2021: For these plans, the entire maturity amount is taxable if the total premiums paid throughout the policy term exceed ₹2.5 lakh per year. In this case, the capital gains are taxed at a rate of long-term capital gains exceeding ₹1 lakh, with indexation benefits applicable.

Taxation on Death Benefit

The death benefit received by the nominee in case of the policyholder's unfortunate demise is generally tax-free, regardless of the policy term or premium amount.