ULIP investment is one of the most popular financial instrument when it comes to investing in India. ULIP offers you the unique opportunity to build a substantial fortune while safeguarding the lives of your loved ones and family with life insurance cover. ULIP provides flexible choices and numerous benefits to develop your investments effectively. However, a remarkable aspect of ULIP is its tax saving properties. Read on to know different tax exemptions you can expect from your ULIP plan.

6 Reasons why ULIPs are Effective Tax-Saving Instruments 

  1. Tax-Free Premium 

When you purchase a ULIP policy, you need to pay premiums to the insurer. You can use a ULIP Return Calculator to calculate the approximate returns you will receive from the investment as well as the premium you will pay towards the policy. The insurer will use your premium amount to invest in different avenues and create a life cover for you. However, ULIPs provide a tax deduction on the premium amount you pay as per Section 80C of the Income Tax Act. The maximum exemption you can avail is Rs. 1.5 lakhs.

  1. No Tax on Maturity Benefits 

ULIP’s tax exemption also includes the maturity value you receive on your ULIP policy. Only a few modest numbers of investment instruments in India have this advantage. According to Section 10(10D) of the Income Tax Act, you need not pay tax on the capital you receive after completion of policy. However, to avail this tax exemption, the premium amount has to be less than 10% of the sum assured of ULIP policy.

  1. Tax-Exempt Death Benefit 

As ULIP offers both investment and life insurance options, the beneficiary shall receive a death benefit along with income produced from ULIP funds in case of the death of the policyholder. This sum assured death benefit is free from taxation under Section 10(10D) of the Income Tax Act. It means the beneficiary shall receive full amount enabling them to tackle financial difficulties in your absence. 

  1. No Tax on Withdrawals 

ULIP plans have a lock-in period of 5 years after which you can make partial withdrawals. These withdrawals can be made without paying any tax amount. However, one must remember that this facility is available only on partial withdrawals and the amount withdrawn cannot be more than 20% of the total fund value.

  1. Tax Relief on Top-Ups 

You have the ability to enhance your ULIP returns by purchasing additional top-ups with the current policy. The insurance company will allow you to buy top-ups when you have surplus amount to be invested in the funds. As per Section 80C and 10(10D) of the Income Tax Act, you are allowed tax exemptions on top-ups.

  1. Saving Tax on Capital Gains 

When you profit more than Rs. 1 lakh from shares, Equity Linked Savings Scheme (ELSS) and Equity-based mutual funds, you are inclined to pay Long Term Capital Gains (LTCG) tax. However, in the case of ULIP plans, you do not pay any tax on the profits earned from ULIP funds. This gives ULIP an edge over other investment options. 


When you continue to invest in ULIPs for the long term, it provides you with more saving opportunities from tax exemptions. As premiums are tax-free, it offers you a substantial advantage to continue with ULIP in the long run. Investing in ULIP with tax benefits will help you earn huge profits. You must remember the tax exemptions during the submission of income tax returns to maximise your savings.