How to Save Tax with ULIP?

The combination of life cover and investment makes ULIPs an excellent investment choice. But do you know that ULIPs can also help you save taxes? Read this post to know more.


Security and investment are crucial to your financial health. Most investment products currently available in the market help you achieve one of these two elements. For instance, if your aim is security, you can consider something like a whole life insurance or term plan. For investment, you can look for direct equity, mutual funds, bank FD, and government schemes.

ULIP is one of the few products that cater to your security as well as investment needs. It is a type of life insurance product that allows you to invest and generate returns. Moreover, ULIPs also help you save taxes. Here is how-


  1. Tax Deduction with ULIPs

As ULIPs are a type of life insurance product, they are eligible for a tax deduction. Under Section 80C of the IT Act, premiums of up to Rs. 1.5 lakhs paid for ULIP can be deducted from your taxable income.

But this tax deduction is only applicable if the premium amount is equal or less than 10% of the total sum assured. For example, if the sum assured of your ULIP is Rs. 50 lakhs and you pay more than Rs. 1.5 lakhs in annual premiums, you can only claim a deduction of up to Rs. 1.5 lakhs.

Also, note that you need to remain invested for five years, which is the minimum lock-in period, to claim this tax deduction. If you withdraw your money before 5-years, the tax benefit you have already claimed will be reversed.


  1. Maturity Tax Benefit

Apart from the premium deduction, even the maturity amount that you receive from your ULIP investment comes with tax benefits. Under Section 10 (10D) of the IT Act, the maturity proceeds from a ULIP are fully tax-exempt.

But just like the tax deduction mentioned above, tax-free maturity is only applicable if the premium amount is equal or less than 10% of the total sum assured. If the premium amount is more than 10% of the sum assured, the maturity proceeds will be added to your taxable income and taxed as per your applicable income tax slab.

  1. LTCG Benefit

Investment options like mutual funds attract LTCG (Long-Term Capital Gains) tax at the rate of 10% on gains of more than Rs. 1 lakh. The LTCG tax on capital gains was re-introduced in Budget 2018. But as ULIPs are not pure investment products but a combination of life insurance and investment, they are exempt from LTCG tax.

This LTCG tax exemption has made ULIP one of the most tax-efficient investment options as compared to many other investments like mutual funds and direct equity investment.

Experience a Plethora of Benefits with ULIPs

 Apart from providing life cover and helping you build a long-term investment portfolio, ULIPs also offer excellent tax benefits. With a single product, you get to purchase life insurance, invest, and even reduce your tax liabilities.

But as returns from ULIPs are market-linked, select the ULIP funds carefully as per your risk appetite and long-term financial goals. Relying on a reputed insurance provider that offers multiple investment funds to choose from is highly recommended.

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