Vivek Jain, Head of Investments of Policy Bazaar.comA few moments ago
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In Budget 2025, tax related rules of Unit Linked Insurance Plan (ULIP) have become more clear. The taxation on ULIPs will be similar to other investment options such as mutual funds. This change will help investors to take the right financial decisions.
If you invest up to ₹ 2.5 lakh annually in one or more ULIP schemes, then the amount on maturity will be 100% tax-free. On the other hand, on other equity investments, a long -term capital gains (LTCG) of 12.5% have to be paid at a profit of more than ₹ 1.25 lakh. But if a ULIP policy has more than ₹ 2.5 lakh premium annually, then it will be considered a capital asset. Profits of more than ₹ 1.25 lakh will be taxed at 12.5%.
Understand this by example: If a person invests ₹ 20,000 every month for 20 years and gets 14% annual growth, then investment will give a return of about ₹ 2.35 crore. After paying a tax of ₹ 23.2 lakh on equity investment, the amount will be reduced to ₹ 2.12 crore. While the return from ULIP will remain tax-free.
This means investing in ULIP can save ₹ 23.2 lakh in tax, which will keep the total returns more. However, this tax-free benefit will be applicable only to the ULIP policies, which have been purchased after 1 February 2021 and whose annual investment is up to ₹ 2.5 lakh. All such ULIP plans, which are not allowed tax exemption under section 10 (10D), will be considered as equity -based mutual funds.
What is ULIP? Unit Linked Insurance Plan (ULIP) is a life insurance product in which the customer gets a double benefit of wealth creation and life insurance protection. That is, the protection of insurance is also available in ULIP along with investment.
On the death of the policyholder, the amount of insurance in the ULIP plan is paid to the nominee. In this, you get a term plan life cover on one side, and on the other hand you also get a chance to invest.
