6 Things You Should Know About the Tax Benefits in ULIPs

Apart from the different insurance plans available in the market, Unit-Linked Insurance Plans (ULIPs) are sought among investors. With ULIP plans, you get insurance coverage and the ability to build wealth under the same plan. In ULIPs, one part of the premiums you pay are held for insurance coverage, and the second part is invested in the funds you have selected.

ULIPs are famous for offering various features through the plan. For instance, you can switch between the funds you have selected during the policy’s tenure. Insurers like Tata AIA also offer loyalty additions with the Tata AIA ULIP plan to reward their customers. ULIPs also offer you a wide range of tax benefits.

6 Features of the ULIP Tax Benefits

Given below are some things you should know about ULIP taxation:

  • Tax benefits on ULIP premiums: As a policyholder, you can avail up to tax benefits of ₹1,50,000 on the insurance premium amount paid towards the ULIP policy as per Section 80C and 10D of the Income Tax Act. In addition, holding the ULIP policy active for five consecutive years will help you enjoy tax exemption.
  • Tax-free withdrawals during death: If you pass away unexpectedly, your beneficiaries are eligible to get a sum assured amount along with the return earned by your ULIP investment. In addition, the pay-out from the plan is entirely exempted from taxation as per the income tax rules.
  • ULIP maturity tax benefits: As per Section 10(10D) of the Income Tax Act, the maturity benefits you earn through the investment are eligible for tax benefits. To get the tax benefits on the ULIP returns, the premium amount for the policy must be lower than 10% of the sum assured if the policy is purchased after 1st April 2012. The maturity amount is exempted from taxation for individuals who have bought the plan after 1st April 2012 if the annual premium amount is lower than 20% of the sum assured.
  • Top-up benefits: ULIPs offer the flexibility to improve the investment by buying top-ups. In addition, the top-ups included in the plan are also eligible for income tax deductions as per Section 80C and 10D.
  • Partial withdrawal tax benefits: Once the initial lock-in period of the ULIP plan is over; you get the flexibility to withdraw a portion of the amount from the plan. If you’re withdrawing the amount after the lock-in period, you do not have to pay the taxes for the withdrawals. However, to avail of the tax benefit on the withdrawal amount, the amount must not exceed 20% of the fund value.
  • Long-term tax benefits: With ULIP policies, you can enjoy tax benefits if you hold the investment for the long term. This is because the lock-in period for the ULIP insurance plan is around 5 years. This way, you profit for at least 5 consecutive years by saving taxation on the premiums. As a result, you will get more tax benefits if you continue with the policy.

Tax benefits like these make ULIPs one of the most preferred options for individuals looking for tax-saving instruments in India.


ULIPs offer you an opportunity to build wealth and to make sure your family’s financial future and goals are protected even when you’re not around anymore. Apart from the financial benefits provided by the plan, you also get access to various tax benefits. For instance, the death and maturity benefits obtained through the policy are eligible for tax exemption.

News Reporter