Tax payments can be dreaded yet an inevitable part of your financial plan. As a working professional, you should compulsorily pay your taxes after you start earning. Since there is no escape from tax payment, you might look for various ways to save taxes. One of the most effective techniques to reduce your tax burden can be by investing in a Unit Linked Insurance Plan (ULIP). Before you invest in a ULIP plan for its tax-saving benefits, let’s understand what a ULIP plan is in detail:

A ULIP plan is a mix of insurance and investment that can allow you to obtain dual benefits from a single plan. While the insurance component can let you financially protect your family members, the investment element can allow you to participate in the capital market. In addition to this, a ULIP policy can allow you to reduce your tax liability. However, the ULIP tax benefits can be applicable to the insurance aspect of the policy.

Under a ULIP policy, you can claim deductions on premiums as well as maturity amount. Since the dual tax benefits are one of the major advantages of a ULIP policy, let’s take a look below to understand the ULIP tax benefits:

1. According to Section 80C of the Income Tax Act, 1961

As a policyholder, you should regularly pay the premium in return for the coverage. While a major proportion of the premium can be diverted towards the life cover, the rest of the percentage can go towards the funds. When you pay the premium regularly, you can claim a deduction up to Rs. 1,50,000 on your taxable income in accordance with Section 80C of the Income Tax Act, 1961. For instance, if the annual premium of your ULIP policy equals to Rs. 2.5 Lakhs, your premium up to Rs. 1.5 Lakh can be eligible for a tax deduction from your taxable income. However, if the total premium amount is Rs. 60 Lakh, your insurer can deduct the same Rs. 60 Lakh from your taxable income.

2. According to Section 10(10D) of the Income Tax Act, 1961

A ULIP policy can provide you with a payout called maturity benefit on the maturity period. It can allow your family to sustain financially in your absence. Typically, the maturity payout can be tax-free, according to Section 10(10D) of the Income Tax Act, 1961. In simple terms, your family can obtain the whole amount without taxes that can eventually reduce your tax liability.

3. According to Section 80CCC of the Income Tax Act, 1961

Section 80CCC has been levied to encourage you to invest in the National Pension Scheme (NPS). While many of you might invest in the NPS scheme for your retirement, the rest of you might own a ULIP plan along with the NPS Scheme. When you hold possession of both these policies, you can claim an additional tax deduction up to Rs. 50,000. In simple terms, you can claim an overall deduction up to Rs. 2 Lakh.

To sum up, the tax benefits can make a ULIP policy an inevitable part of your investment portfolio. Apart from tax benefits, a ULIP policy can be flexible as well as an affordable solution of investment. Under a ULIP policy, you can choose your premium payment mode, types of ULIP funds based on your risk appetite while you get to save more on taxes at the same time. Before choosing a ULIP policy, you should research different ULIP options and compare the selected option. At the time of purchase, you should invest in the right ULIP policy to receive maximum tax benefits over the due course.