Tax planning plays a crucial role in order to manage your finances thereby, reducing the tax liability. The process of tax planning helps you to claim deductions, get yourself reliefs from IT Acts and provisions. This helps greatly in saving your taxes. Life insurance companies provide you with a solid ULIP plan that is instrumental in providing benefits other than tax saving.
Unit Linked Insurance Plan, ULIP, provides a life insurance by making a remarkable and beneficial investment. The amount that is paid by the policyholder, that is the premium, is used partly to make investments in equity and various debt schemes. ULIP gives you the liberty to make investments as per your choice.
Now that you know what is Unit Linked Insurance Plan and what are its benefits, we can now discuss how you can save tax money using ULIP.
ULIP and Tax Deductions
The entire theory behind ULIP narrates that the amount that is paid, or the premium that is used in ULIP plans is used for the process of tax deductions. Also, the income tax provision declares that the amount paid to any particular life insurance policy can be used or can be recognised as tax deduction.
Two important Indian income tax provisions that are applicable here are the 80C that says that insurance premium is free from any and all forms of taxes and 80CCC which says that amount invested in pension plans is exempted from tax. According to these provisions, in a financial year, you are exempted from Rs. 1, 50,000 that means that you can still invest a larger amount but the deduction per year is this much.
ULIP Conditions
In order to get your tax deducted or in order to get exempted from taxes it is essential or mandatory for your ULIP policy to be active at least for a period of two years. This is the minimum requirement in order to be exempted from taxes. Even if your policy is deactivated in the second year, the privileges from the first year are withdrawn. To avoid this, make sure you make a long term investment and do not miss out on the regular payment of premiums.
Also Read: All You Need to Know about New Generation ULIP
Goal – Centric Plans
The minimum lock – in period of ULIPs is approximately five years. It is after this minimum period that the policyholder can withdraw small chunks that is, 20% of the fund value policy. The advantage behind a lock – in period is that you can save the amount of occasions that hold a lot of importance.
For example, planning for occasions like marriage, education, home purchase, etc. can be easy and convenient this way. This in turn, helps you to manage your finances during inflation. You can take advantage of the economic development of the country through this. A combination of equity and debt facilitates easy management of risks in accordance with your age and current source of income.
Through ULIPs, you can make the most out of your money through impressive tax savings, enjoy profitable returns and get assured financial protection for yourself and your family. And all of this happens with minimal risks!
