India has two types of taxpayers. Those falling in the first category plan their taxes at the start of the fiscal year, understand which tax-saving schemes to invest in, and fill the ITR (Income Tax Return) forms as soon as they are available.
People falling in the second category, only realize they have to pay taxes a few weeks or days before the deadline, buy schemes in an utter panic hoping it will save some money, and nearly miss the tax filing deadline.
Unfortunately, most tax-payers belong to the second category. This has to change. One should never wait till the last moment but start preparing for the ITR filing right away.
A smart place to start is to invest in schemes that provide you the best of tax returns as well as a good return on your investment in terms of money or protection.
For most people, this means a life insurance policy and a tax-saving mutual fund. However, with the introduction of Long Terms Capital Gains (LTCG) on the funds, it could mean paying more than you expected.
Under such circumstances, ULIPs or Unit-Linked Insurance Plan make for a smart investment.
What is ULIP?
The first thing you should understand about ULIPs is that they are a hybrid product. A term insurance plan and a mutual fund scheme are two separate plans. The Unit- Linked Insurance Plan, however, is a mix of the both of them. It is a combination of protection and saving. The money you pay as premium goes into securing your life as well as investing in different assets to generate handsome returns.
Is it beneficial?
Of course, it is. In today’s market, ULIP tax benefits are unparalleled. Here’s how:
- The premium you pay towards the plan is eligible for deductions under section 80C of the Income Tax Act 1961 up to Rs. 1.50 lakh. There is, however, one condition that the premium paid should be less than or equal to 10% of the sum assured.
- You get to choose the asset class to invest your money in. If you’re a risk-taker, go for equities. If you’re more on the balanced side, go for a mix of equities and debt instruments. The choice is left to you.
- According to Section 10 (10D) of the Income Tax Act 1961, you enjoy a tax-free maturity amount provided the premium you pay is less than 10% of the sum assured. The death benefit is tax-free too.
- Unlike some other investment schemes, a Unit-Linked Insurance Plan does not attract LTCG, which makes this investment product a standout among the others in the financial market today.
So, one, this plan secures your life. Two, it takes your money and invests in the assets you want to generate returns. Three, it provides solid tax benefits.
Thus, as you get into tax-planning, make sure this particular investment product is a part of your portfolio as early as possible. Do this and you won’t have to scramble for plans at the last minute next year while you file your tax returns.