India is one of the highest saving nations amongst the emerging economies. The Gross Domestic Saving constitutes savings of public, private corporate and household sectors with the household sector having a dominant position over other institutional sectors. It is thus imperative that the government makes efforts to boost savings by giving tax deductions. Though there are multiple modes for saving tax, life insurance is one of the most effective tax- planning instruments. Upon investing in Life Insurance products, one can get a tax deduction on the premiums paid under Section 80 C of the income tax act, 1956 (within an overall limit of Rs. 1.50 lacs per year).Also, the maturity proceeds of a Life Insurance policy are fully exempt if the premium paid on such policy did not exceed 10% of the sum assured in any of the year.
Amongst all insurance plans, new age Unit Linked Insurance Plans (ULIPs)are a category of goal-based financial solutions that offer dual benefits of protection and Investmentofferingthe advantage of tax saving to the customer. A Unit linked Insurance Plan is linked to the markets and offers the flexibility to invest the units in equity or debt funds depending upon the customer’s risk appetite. The investment risk is borne by the policy holder.In this respect, a new age ULIP acts somewhat like a mutual fund with added benefit of life cover and it offers more efficient tax saving by charging much lesser than mutual funds.
ULIPs now havecharges capped and offer better returns
In the past, ULIPs suffered from certain limitations like high charges, sale keeping in mind a short term horizon, and lack of active involvement by the customer. In 2010, the IRDA issued new guidelines for ULIPs in order to improve the returns for investors by reducing charges and to ensure that the new product is sold and bought as a long-term protection and savings tool.We have gone a step ahead by launching an online ULIP called Click2Invest which charges for only mortality and fund management making it more cost effective than a mutual fund.
Efficient tax saving using low charge ULIPs
ULIPs offer comprehensive tax benefits. The premium paid up to Rs 100,000 in a year is eligible for tax benefit under section 80C. The maturity benefit for policies with insurance cover with 10 times of the premium or more is tax free under section 10(10D). Moreover, the returns under various types of funds including debt funds are also tax free. Partial withdrawals made at various points in time are also tax free.
The above tax benefits along with lower charges offer a win-win situation for the customer.
Tax planning should not be done in isolation and one must align this activity with the larger investment needs in a well planned and systematic manner to gain maximum benefits. The habit of financial planning should be cultivated right from the early stages of career. Ideally this exercise should be done at the start of every financial year where one should make an assessment of allocation of available funds to ULIP- long-term tax-saving instruments.
Mr. Tripathy joined HDFC Life in 2004 and has been responsible for Marketing Strategy, Brand Planning, Advertising, Communication & Media, Customer Insights, New Product Development, Product Life Cycle Management, Online and Digital Strategy, E-Commerce, Customer Analytics, & Corporate communication. He started his career with GCMMF Ltd. in 1992. Since then he has worked with various reputed organizations like Frito-Lay (PepsiCo), Mattel and Reliance Infocomm before moving on to his current role at HDFC Life.View Complete Profile
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