A ULIP or Unit Linked Insurance Plan is a type of insurance plan that offers the dual benefit of investment and insurance. You can now reach your long-term life goals by investing and, along with it, have peace of mind with life insurance combined in one plan.

The overall premium paid towards your ULIP plan is split into two parts. A part of the premium is used to provide you with life cover. The other part of your premium gets invested in the funds of your choice.

The best part about ULIPs and what makes them an ideal prospect for you is that you get to choose the investment options. You can choose to invest in debt, equity funds, or a combination of both as per your goals and risk appetite.

People usually choose to invest in unit linked insurance plans to achieve their long-term goals. What’s better? Apart from offering flexibility and transparency, Unit-Linked Insurance Plans also come with income tax benefits. With all of these perks and pros, ULIP stands out from other life insurance products.

All traditional insurance plans offer tax benefits along with life protection. ULIPs, on the other hand, provide life protection, tax benefits, and investment returns! Are you wondering if these returns are taxable? Let’s first know the basics.

There are three basic tax exemption systems for all tax-saving investments. They are EEE (Exempt – Exempt – Exempt), ETE (Exempt – Taxable – Exempt) and EET (Exempt – Exempt – Taxable)

What is EEE?

ULIPs are tax-saving instruments that are categorised under EEE. The first E or Exempt indicates that investments are qualified for an income tax deduction, which means the part of your hard-earned salary you invest in ULIP is exempted from taxes.

The second E or Exempt indicates that the interest earned during the investment phase is also non-taxable.

The third E or Exempt indicates that the overall income you generate from the investment would be non-taxable during withdrawals.

Usually, the EEE regime is available for long-term investments like PPF, EPF, or ULIPs. This makes ULIP even more profitable for people.

What are the tax benefits of ULIPs?

A part of the premium you pay towards your ULIP is invested in equity, debt, or money market funds. Subject to specific conditions, the premium you pay towards ULIPs qualify for tax deduction under Section 80C of The Income Tax Act, 1961.

You must note that ULIP premiums are applicable for tax deduction under Section 80C but up to a permissible limit. This limit is currently ₹ 1.5 Lakh. The basic requirement is that the overall premium amount shouldn’t exceed 10% of the sum assured. To make it simple, if the sum assured is ₹ 15 Lakhs and the premium you pay is under Rs 1.5 Lakh, then the overall premium amount is applicable for income tax deduction under Section 80C.

We hope that you have understood why ULIPs are EEE and what it means.

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