ULIP: What is it? 

A unit-linked insurance plan, or ULIP, is a special plan that offers you both an investing component and an insurance policy. Your premium payment is split between purchasing a life insurance policy and investing the remaining money of your choice. Various insurance firms offer several fund options. 

ULIP plans are becoming even more well-liked now because it is the tax-saving season. The primary explanation is because ULIPs are EEE (Exempt-Exempt-Exempt) products. First, let’s clarify what this entails. 

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

Revised ULIP Taxes Rules After the Budget

One of the most tax-efficient investment alternatives in the nation has historically been ULIPs. This was an amazing market investment choice when you consider the investment alternatives offered under a ULIP. 


ULIP tax benefits on invested funds and plan withdrawals allowed you to be practically tax-free and accumulate wealth. Yet, due to the recent tax changes, even ULIPs are now subject to taxation.

Here are the updated ULIP taxes regulations that become effective in February.

Returns From ULIPs May Be Taxable

Previously, ULIP returns were not subject to taxation if your annual investment did not exceed 10% of the plan’s life insurance coverage. The returns you receive will be taxed if the premium you pay for ULIPS exceeds Rs 2.5 lakh. The makeup of your ULIPs will affect the tax rate.

Limitations on Fund Changes

Fund switches are a feature that is present in the majority of ULIP plans. This allows you to change funds if you can get higher returns. The majority of these “switches” were free. Now, though, this might no longer be the case. This is a result of ULIP now becoming taxable. 

The tax will be calculated based on how long you have owned ULIPs (2(a)). Less than three years: subject to the tax slab rate; more than three years: subject to a 20% charge. Taxes under both Section 112 and Section 112A shall be calculated based on the type of funds held at the time of maturity, according to 2(b).

Tax Regulations for Death Benefits

The tax regulations remain unchanged regarding the death benefit that will be paid to your nominee after your passing. Section 10(10)D of the Income Tax Act states that the death benefit is still tax-exempt.

How do ULIP Taxes Operate Currently?

Taxes based on your funds

The funds you choose and your quantity will determine the taxes you will pay on your ULIP returns.

  1. Your funds will be taxed as equity mutual funds if the equity portion exceeds 65%. 
  2. For indirect equity investments, such as those made through ETFs, the equity must be at least 90% to be taxed as an equity mutual fund. 
  3. Investments in equity funds are exempt from long-term capital gains (LTCG) up to Rs 1 lakh. Taxes will be charged on any sum more than that. 

The long-term capital gain tax is covered by Sections 112 and 112A. The rates are as follows: 

Section Rate Gain from Equity-Oriented Funds Units 

112A 10% (without indexation) (without indexation) 

Gain resulting from Non-Equity Fund Units (Debt funds) 

112 20% (without indexation) (without indexation)

Section 80C Tax Exemption

The recent tax changes have not altered the deductions under Section 80C. According to the guidelines under section 80C of the Income Tax Act, you may still be able to deduct up to Rs 1.5 lakhs from the premium you have already paid. Section 80C allows deductions from the entire value of all of your investments. If you bought a ULIP after April 1, 2012, your premium should be less than 10% of your sum insured.

  1. Section 80C and Other ULIP Tax Advantages 

Maturity benefits have changed due to the new tax regulations for ULIPs that the government announced in the budget. Your returns will be tax-free under Section 10(10)D if you pay a premium of less than Rs 2.5 lakh in a calendar year. However, taxes will be due if the premium exceeds Rs 2.5 lakh annually.

In addition to offering you a life insurance policy and investing opportunities, ULIPs also give you ULIP tax benefits. Nonetheless, there have been some adjustments in taxation since the most recent changes.