In recent times, ULIPs have become really popular instruments in India. Especially after the introduction of the LTCG tax under which they are the few exempt instruments, ULIPs are increasingly being recognized as an important part of financial planning.

What is a ULIP?

A Unit Linked Insurance Plan or ULIP is a unique plan which provides you an insurance policy along with an investment component. A part of your premium payment goes towards life cover, and the other part is invested in funds as your choice. Different insurance companies offer different choices of funds.

If you are looking to invest in a ULIP for the first time, an excellent choice would be Canara HSBC Oriental Bank of Commerce Life Insurance Invest 4G. It offers you a choice between 3 plan options, 4 premium payment modes, 7 different funds, and 4 different portfolio strategies. You have the freedom to choose a combination that suits your financial capabilities and future goals.

It is tax-saving season and ULIPs are gaining even more popularity now. The main reason is the EEE (Exempt-Exempt-Exempt) nature of ULIPs. Let us first understand what this means.

Exempt- Exempt- Exempt

Tax-saving instruments belong to either of three categories

• EEE (Exempt- Exempt- Exempt)
• EET (Exempt- Exempt- Taxable)
• ETE (Exempt- Taxable- Exempt)

ULIPs belong to the EEE category, which is generally applicable on long-term investments like EPF (Employee Provident Fund), PPF (Public Provident Fund), NPS (National Pension Scheme), etc.

• The first exemption is upon the investment made in a ULIP. The part of your annual income invested in these instruments becomes tax-deductible.
• The second exemption is upon the interest earned on the investment.
• The third exemption is upon the income or the maturity amount of the investment when withdrawn.

The most important ULIP tax benefits that you can avail every year are deductions under Section 80C of the Income Tax Act.

Section 80C

This is the most popular section of the Income Tax Act used for tax saving. The contribution to investments listed under this Section from your salary is exempt from tax. These investments include ULIPs, ELSS (Equity Linked Savings Scheme), NSC (National Savings Certificate), life insurance policy, etc.

Deduction limit under Section 80C

The total amount of deduction that you can claim under this section is Rs.1.5 lakh. This means that the limit of Rs.1.5 lakh is upon the sum total of all investments and not individual investments. For example, if you have invested Rs.2 lakhs in total on PPF, ULIPs, and NSC, you can avail a total deduction of Rs.1.5 lakh.

ULIP tax benefits under Section 80C

Premium paid for a ULIP on a yearly basis is exempt from income tax upto Rs.1.5 lakhs (the limit being applicable on total of all investments under Section 80C). There are, however, certain conditions for this deduction.

• If the plan is bought post 1st April, 2012, premium amount has to be equal to or less than 10% of sum assured.
• If the plan was purchased before 1st April, 2012, premium amount has to be equal to or less than 20% of sum assured.

ULIP tax benefits other than Section 80C

• The maturity amount of a ULIP is exempt from income tax under Section 10(10D) of the Income Tax Act.
• Death benefit received in case of death of policyholder is also exempt.
• Even for the above deduction to be applicable the premium amount has to be less than or equal to 10% of sum assured for a plan bought after 1st April, 2012; and less than or equal to 20% of sum assured for plans purchased before April 1, 2012.
• Under the LTCG (Long Term Capital Gains) Tax introduced in 2018, the sole market-linked investment instruments to be exempt are ULIPs.

The EEE advantage, along with exemption from LTCG tax, coupled with various other benefits make ULIPs highly preferable, especially for first-time investors.

Invest 4G ULIPs

Canara HSBC Oriental Bank of Commerce Life Insurance Invest 4G is a lucrative ULIP, of which tax-saving is just one of the big advantages. It offers you a chance to secure your family against an eventuality and invest in financial goals like education and travel at the same time. With added benefits like Loyalty Additions, Wealth Boosters, and Return of Mortality Charge, it helps you maximize your income upon maturity.