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ULIP Tax Benefits - Tax Saving Investment Option

ULIP Tax Benefits - Tax Saving Investment Option
July 27, 2023


In this policy, the investment risks in the investment portfolio is borne by the policyholder

What Is a ULIP?

Unit-Linked Insurance Plans (ULIPs) are financial tools that offer investment avenues while providing life insurance coverage. When you purchase a ULIP, the premium you pay gets split into two parts. A portion goes towards providing insurance coverage. The rest gets invested in funds of your choice. You can select debt, equity, or balanced fund options based on your future financial requirements and risk appetite. You pay regular premiums, based on the selected schedule, to build a corpus over the policy tenure. If anything happens to you during this time, your beneficiary or heir receives the life insurance payout.

What You Need to Know About ULIP Tax Benefits

Premium Deductions

The premiums you pay for your ULIP are eligible for tax benefits under Section 80C# of the Income Tax Act 1961. You can claim a maximum deduction of Rs. 1,50,000 per year under this section. However, it needs to be noted that you are only eligible for the deduction if the premium amount, for a ULIP issued on or after 1st April 2012,   is  less than 10% of the death sum assured selected for the plan. For higher premiums, the deduction gets capped at 10% of the death sum assured

Maturity Benefits

Proceeds received on surrender/partial withdrawal/maturity of ULIP plan are exempt from tax subject to provisions mentioned in Section 10(10D)# i.e if the premium payable for any of the years during the policy term does not exceeds 10% of the death sum assured.

In addition to the above, for policies issued after 1st Feb 2021, tax exemption on maturity proceeds will be available if premium paid in any of the years towards such matured polices does not exceed Rs.2,50,000. Out of the total matured policies in a financial year, exemption u/s 10(10D) will be available only towards those polices who’s aggregate premium in any years does not exceed Rs. 2,50,000/.

Income from rest of the policies exceeding the mentioned limit will be chargeable as capital gains.

Death Benefit

The death benefit paid to your beneficiary or nominee is not taxable. They will receive the entire sum assured without having to pay any tax.

Partial Withdrawals

ULIPs enable you to make partial withdrawals under certain circumstances to deal with financial emergencies. You can withdraw a percentage of the accumulated corpus after the five-year lock-in period, subject to tax applicability in accordance with Section 10(10D) as mentioned above.

Deductions on Top-Ups

Once you complete the five-year lock-in period, you can choose to invest more money into your ULIP through top-ups. You are eligible to claim tax deductions against the top-up amount under Sections 80C.  To enjoy these benefits, you must ensure that the premium amount does not exceed more than 10% of the sum assured.

Long-Term Tax Benefits

ULIPs have a lock-in period of two years under the Income Tax Law. Hence, it is advisable to stay invested in ULIP plans for long term. In case the premium is not paid for 2 years or in case of single premium plans, policy is surrendered within 2 years of its commencement, deduction availed earlier (at the time of premium payment) under Section 80C will become taxable.

Insurance, Investment and Tax Savings

ULIPs offer investment opportunities while providing life insurance coverage and tax benefits. These plans help in financial planning while offering protection to your loved ones and providing tax savings in the present.

Key Features and Benefits of ULIPs

Provides Insurance Plus Investment Benefits

ULIPs enable policyholders to invest in various funds and build a corpus for long-term financial goals while providing protection through life insurance coverage. 

Allows Choosing and Switching of Funds

When you invest in a ULIP, you have the liberty to choose where your money gets invested. You can select funds based on your financial goals and risk appetite. You can also make fund switches to take advantage of market fluctuations and cater to your dynamic needs.

Partial Withdrawals

While investing in your ULIP, you may require funds in an emergency to deal with education or other expenses. ULIPs allow you to make partial withdrawals after the five-year lock-in period, as long as you meet a few conditions. The withdrawals allow you to keep your investment active while dealing with present needs.

Premium Redirection

ULIPs also provide you with the option to redirect future premiums to different funds. You can use this to your advantage to secure your investment as it gets closer to the end of your policy tenure. 

ULIPs are unique financial products that offer three advantages. Firstly, they allow you to build a corpus for the future. You can select how your funds get invested based on your risk appetite and future goals. Next, these plans offer life insurance coverage. It helps safeguard your family’s financial future during a difficult time. Thirdly, these policies offer multiple tax benefits, allowing you to save for the future while maximising tax savings in the present.

ARN - MC/07/23/3099

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Author Profile Written By:
Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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Reviewed by Life Insurance Experts


We at HDFC Life are committed to offer innovative products and services that enable individuals live a ‘Life of Pride’. For over two decades we have been providing life insurance plans - protection, pension, savings, investment, annuity and health.

# Tax benefits & exemptions are subject to conditions under Sections 80C, Section 10(10D) and other provisions of the Income Tax Act, 1961.

# Tax Laws are subject to change from time to time.

# The customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax liabilities under the Income-tax law

The afore stated views are based on the current Income-tax law. Also, the customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his personal tax liabilities under the Income-tax law.

The Unit Linked Insurance products do not offer any liquidity during the first five years of the contract. The policyholders will not be able to surrender or withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of fifth year.

Unit Linked Life Insurance products are different from the traditional insurance products and are subject to the risk factors. The premium paid in Unit Linked Life Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. HDFC Life Insurance Company Limited is only the name of the Insurance Company, The name of the company, name of the contract does not in any way indicate the quality of the contract, its future prospects or returns. Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document of the insurer. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns.