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Know About New ULIP Taxation Rules

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Unit Linked Insurance Plans (ULIPs) have become a popular investment option in India due to their dual benefits of insurance and investment.

Unit Linked Insurance Plans, or ULIPs, are an investment option recently gaining more popularity than other instruments. Due to the fact that it combines the advantages of insurance and investing, it has become very popular. Additionally, it provides sizeable amount of ULIP tax benefits under section 80C and a crucial tax exemption under section 10(10D). The Budget Act of 2021, however, altered these benefits. Nonetheless, ULIPs (Unit Linked Insurance Plans) may prove to be a sensible decision for investors.

The ULIP calculator is a simple and easy to use tool that you can use to predict the return you might get at maturity by entering a few details.

ULIP: What is it?

A unit-linked insurance plan, or ULIP, is a type of hybrid investment offering customers the advantages of investing and insurance. Your premium contribution goes in two different directions. You invest in wealth creation in one part and are insured in the other.

Remember that only 10% of the actual capital sum assured in the premium is eligible for ULIP tax benefits under section 80C when you invest in ULIPs. **

The New ULIP Regulations

In order to level the playing field for ULIPs, the Ministry of Finance made it clear in the 2021–22 union budget that the tax regime for high–premium and low–premium ULIPs needed to be different.

High-premium ULIPs are not exempt from paying taxes.

According to these terms, there would be no tax exemption for the ULIP policy(s) bought on or after 1 February 2021 if the total premium paid for the full tenor exceeds 2.5 lakhs in any year.

No tax exemption is permitted for ULIP plans issued on or after 01-02-2021 if the total amount of annual premium that is paid in any year during the time of the ULIP exceeds 2.5 lakhs, according to the fourth proviso. This proviso specifically refers to a certain policy. If your single insurance premium in any given year is 2.5 lakhs, only then will you be eligible for the tax exemption under section 10 of the Income Tax Act (10D).

The fifth provision provides the exemption policy in the event of numerous policies. If more than one ULIP is granted on or after 01-02-2021, all premiums paid for all plans must be at most Rs. 2.5 lakhs to be eligible for the tax exemption under section 10(10D). You can also decide which plans you want to receive tax exemption on if you have four policies, but only two of them qualify for the exemption.

If you pay more in premium during any one year of the tenor than the maximum of Rs. 2.5 lakh, the total value promised at maturity would be added to your taxable income.

No adjustments to the former ULIP premium

If you purchased a ULIP before January 2, 2021, you would be eligible for the tax exemption under Section 10, regardless of the amount of the premium you paid (10D). But, if you purchased a policy before January 1, 2021, and another after, you cannot take advantage of the tax exemption on the new insurance if the premium payments for both plans exceed Rs. 2.5 lakhs.

Individuals and investors with lesser net worth will now be qualified for all tax exemptions when investing in ULIP plans, as well as at the time of maturity or death. However, the High Net Individual (HNI) will now have to deal with the increased tax burden.

Notwithstanding the new limitations, ULIP remains one of the more enticing investing options. First off, by insuring you and your dependents, paying your insurance premiums offers high returns on investment. Second, a tax deduction of 1.5 lakh rupees under section 80C is still allowed. Finally, despite all the changes, only a small number of people pay premiums that are greater than 2.5 lakhs annually. The middle class still has a good investment choice as a result.

The taxation of Unit Linked Insurance Plans in India has been dramatically altered by the new ULIP taxation regulations. These adjustments, which were made in the Union Budget 2021, are intended to increase government revenue while making ULIPs a more transparent and investor-friendly investment alternative. Investors must comprehend these changes and evaluate how they will affect their investment choices. The new regulations may have immediate effects, but they may ultimately provide more stability.

You can utilise a ULIP calculator to estimate future returns and the value of a ULIP investment.

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