A product like the Unit Linked Insurance Plan (ULIP) is a worthy investment for numerous reasons. Amongst those, exempt-exempt-exempt (EEE) is a major benefit of owning a ULIP Policy. Compared to other market linked or life insurance products, EEE allows ULIPs to stand out from the rest.
ULIP offers all its investors with life insurance, investment returns, and tax saving benefits. However, before getting excited about these tax benefits, let us begin by understanding the type of exemption system. Ideally, there are 3 important types like EEE, ETT, and ETE.
What is EEE?
Being a tax saving instrument, ULIPs fall under the category of EEE. However, as the name suggests, EEE is categorized into three different meanings.
- First, it signifies that your investment in ULIPs is deducted from taxable income.
- Second, it implies the interest earned during the accumulation phase which is also non-taxable.
- Third, it means that income generated from your investment is non-taxable during withdrawal.
How does it work?
Understanding the functioning of EEE might not be rocket science, but a majority of people tend to get lost while understanding the concept. While an expert can explain better, it is always important to make an effort to understand the basics.
There are three stages involved in the working of EEE. The first stage involves the invested money which can be deducted as per section 80C of the Income Tax Act. The second stage includes interest and dividend interests that are non-taxable as well. The third and the final stage includes withdrawal of your income that is also tax-free which is under section 10(10D) of the Income Tax.
What are the tax benefits of ULIPs?
Subject to certain conditions, ULIPs offer tax benefits to the investors. Take a look at these ULIP tax benefits before investing in one:
1. 80C Benefits
The premium that is paid towards ULIP is invested in equity, debt and money funds. Additionally, the premium paid by you is deductible up to a limit which is up to INR 1,50,000. The only condition is that the amount of premium should be less than or equal to 10% of the sum assured under the ULIPs.
2. Maturity Benefits under 10 (10D)
According to the Income Tax Act, 1961, the proceeds you receive on the maturity of your ULIP policy are exempt from taxation under 10(10D). Even though ULIP offers investment options, it is primarily considered to be an insurance plan. Hence your returns are exempt, just like normal life insurance plans. ULIPs are the only market-linked investment option that offers completely tax-free returns. Just ensure that you keep an eye on your ULIP performance and maximize your corpus.
Investing in ULIPs will certainly allow you to enjoy EEE tax benefits. So if you’re someone who wishes to save more and earn more, then a ULIP Policy should be your go-to. This is because putting money in any kind of monetary mechanism should be worth every penny that you have invested. And a ULIP Policy simply ensures that by offering the right type of features and advantages.
ULIP is a brilliant choice for investment. At the same time, it is important to understand all risks associated with your ULIP policy before investing. Research carefully before selecting the best ULIP plan for yourself.
Now that you have a clear picture of these tax benefits, what are you waiting for? Hurry and invest in the right plan for gaining maximum benefits.