Unit Linked Insurance Policies or ULIPs are a complete monetary tool that gives buyers an element of protection from unforeseen situations and doubles as an investment solution that supplies flexibility to develop their wealth based on marketplace situations.
In the current budgetary proposal of removal of tax exemption on ULIPs maturity proceeds, several specialists have been saying that continued investment by way of renewals in ULIPs remains a sound monetary choice.
Prashant Tripathy, Managing Director and Chief Executive Officer, Max Life Insurance says, “In the recent Union Budget, the Government has announced that the maturity proceeds of ULIPs with an annual aggregate premium of above Rs 2.5 lakh in any financial year will be liable for capital gains tax.”
He additional adds, “However, the budgetary proposal is only applicable for ULIPs issued after January 31st, 2021. Hence, this does not affect the performance or reduce the importance of the product for policyholders who purchased it before February 1st, 2021, making ULIP an attractive investment plus protection tool to continue to remain invested in.”
What are some of the advantages of continuing current policies (issued just before 1st Feb’ 21)?
Industry specialists say, no matter if buyers buy a new ULIP or make a decision to renew their current policy, most will reap the dual advantages of developing their wealth and guarding the future of their households.
Apart from that, Tripathy says “policyholders who have purchased ULIPs before February 1st, 2021 can avail of multiple benefits from renewing their existing policies. For instance, the premium paid on the product continues to enjoy the section 80C deduction benefit up to Rs 1.5 lakh per annum, which is available for new ULIP as well.”
Further, if the annual premium remains beneath Rs 2.5 lakh, policyholders will continue securing tax-no cost returns below section 10(10D). Additionally, the proceeds received on death advantage are also exempt from tax.
Under section 194DA, earnings proceeds are exempt from TDS, and policyholders do not have to spend safety transaction tax (STT) on redemption of such ULIPs.
Tripathy adds, “By continuing investing in ULIP, one remains financially protected apart from having a steady growth of Investment over time.” Additionally, it also aids defend wealth by supplying the flexibility to adjust the selected investment funds based on marketplace situations.
What will be the implications on policyholders who continue with their ULIP policy?
Experts say, policyholders who have bought ULIP just before February 1st, 2021 will not face any implications on their plans and are no cost to take pleasure in the current tax advantages even upon renewal of current policies. The adjustments announced for the duration of the Union Budget are only applicable for buyers who have bought or strategy to buy a new policy right after January 31st, 2021.
Tripathy says, “In case, new ULIPs are purchased with an aggregate annual premium higher than Rs 2.5 lakh in any financial year, the returns will no longer be tax-exempt.” However, each ULIP policyholders who spend premiums above and beneath Rs 2.5 lakh can avail of tax-no cost returns on death advantages topic to situations described below section 10(10D).