How ULIP Plans Help You Save Tax Under Section 80C
That's where ULIP plans come in. Not only do they help you build long-term wealth and protect your family, but they also offer attractive tax benefits under Section 80C of the Income Tax Act.
Let's break it down: what ULIPs are, how they help you save tax, and why they could be a strategic addition to your financial toolkit.
ULIP stands for Unit Linked Insurance Plan. It's a dual-benefit financial product that combines: Life insurance: Financial protection for your loved ones
Market-linked investments: Equity, debt, or balanced funds to help you grow your money
So when you pay a premium, a portion goes toward life cover, and the rest is invested in funds of your choice.
Over time, this amount accumulates and can be used to meet long-term goals like buying a house, funding your child's education, or planning retirement.
If you're wondering which ULIP is right for you, this guide to the best ULIP plan can help you compare options.
ULIPs are one of the few financial instruments that offer triple tax benefits, which means savings at the time of investment, throughout the policy term, and even at maturity.
Here's how it works:
Premiums paid toward a ULIP plan are eligible for tax deduction under Section 80C, up to ₹1.5 lakh per financial year. This means the amount you invest reduces your taxable income, saving you money instantly.
Example:
If your taxable income is ₹10 lakh and you invest ₹1.5 lakh in a ULIP, your taxable income reduces to ₹8.5 lakh. That's a potential saving of up to ₹46,800 if you're in the 30% tax slab.
If you stay invested for the full policy term and meet the applicable conditions, the amount you receive at maturity is completely tax-free under Section 10(10D). This makes ULIPs one of the few investment options with exempt-exempt-exempt (EEE) status.
Conditions include: Annual premium should be less than ₹2.5 lakh (for policies issued after Feb 2021)
The policy must not be surrendered before five years
Unlike mutual funds, ULIPs allow you to switch between funds (equity to debt or vice versa) without triggering any tax liability. This makes them flexible and tax-efficient, especially during volatile market conditions.
While ELSS, PPF, and NPS are also popular tax-saving tools, ULIPs bring a unique mix of benefits: Insurance + Investment: You don't have to buy life cover and investment plans separately
Customisation: Choose your fund type and switch anytime
Goal-based saving: Ideal for 5–15 year horizons
Discipline: The 5-year lock-in encourages consistent, long-term investing
Tax benefits at every stage
To explore additional options and compare ULIPs with other tax-saving products, you can check this quick guide on how to save tax.
ULIPs are a good fit if you: Are looking for both life cover and long-term investment
Want to reduce taxable income while building a future corpus
Prefer flexibility over guaranteed returns
Are comfortable staying invested for 5+ years
Want to track and switch funds as per market conditions
ULIPs are especially useful for professionals in their late 20s to early 40s, when long-term goals (home, children, retirement) and tax-saving needs are both a priority.
Ritu is 30 and earns ₹12 lakh per year. She invests ₹1.5 lakh annually in a ULIP: Gets life cover of ₹25 lakh
Invests in equity for higher long-term returns
Saves ₹46,800 every year in taxes
Plans to use the maturity amount to fund her child's higher education
Over 15 years, she not only creates wealth but also enjoys tax relief and financial protection throughout. ULIPs have a 5-year lock-in. Withdrawals before that aren't allowed
Returns are market-linked, so they may fluctuate
Maturity proceeds are tax-free only if the premium and policy terms meet certain conditions
You may incur charges in the initial years (though they've reduced over time)
ULIPs aren't just about saving tax. They're about building wealth with a purpose, protecting your family, and doing it all in a tax-efficient way.
Yes, they require commitment. Yes, they come with a bit of market risk. But for those who want a smart, all-in-one solution for tax-saving, investing, and insurance, ULIPs offer a lot of value.
So instead of scrambling for last-minute tax proofs, consider choosing a plan that works for you , today and tomorrow.
TIME BUSINESS NEWS
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