A ULIP (Unit Linked Insurance Plan) is one of those financial products that blends two worlds: market growth and life insurance protection. For some people, it feels like flexibility. For others, complexity. But the tax benefits that come with ULIPs often become the deciding factor.
In India, ULIPs enjoy tax benefits for both the premium you pay & the money you receive — making them powerful tools for long-term wealth creation.
A Unit Linked Insurance Plan (ULIP) offers tax benefits primarily under two sections of the Income Tax Act, 1961: Section 80C for premiums paid & Section 10(10D) for maturity or death benefits.
ULIP Comes Under Which Section of Income Tax?
The answer is Section 80C and Section 10(10D).
Both sections apply to ULIPs in different ways.
- Section 80C → lets you claim tax deduction on the premium you pay
- Section 10(10D) → decides whether the payout is tax-free
These two sections are the backbone of ULIP taxation.
Section 80C: Deduction on ULIP Premiums
Section 80C is probably the most popular tax-saving provision in India. It covers everything from PF to ELSS to life insurance — and ULIPs fit right in.
Under Section 80C:
- You can claim up to ₹1,50,000 as deduction
- The deduction applies to premium paid for ULIPs"
- Premium must not exceed 10% of the sum assured if issued after 2012
- If issued earlier, the limit is 20% of the sum assured
A quick relatable moment
A friend once told me, “I bought a ULIP only because my HR kept reminding me to submit tax proofs.”
A lot of ULIPs are bought this way — not because someone planned for it, but because 80C forced a decision.
And honestly, that’s fine. The important part is understanding what comes next.
Also Read: Stamp Duty Exemption in Income Tax under Section 80C
Section 10(10D): Tax-Free Maturity & Death Benefits
This section determines whether the amount you receive in future is tax-free.
Under Section 10(10D):
- Maturity proceeds are exempt
- Death benefits are exempt
- Bonus or fund value is exempt
- Switches between different ULIP funds are exempt
This is what makes ULIPs attractive — no tax on the final payout (subject to conditions).
Important condition
Premium must not exceed ₹2.5 lakh per year across all ULIPs issued after Feb 2021 (for tax-free maturity).
If it exceeds, the maturity amount becomes taxable under capital gains.
This condition was introduced to curb misuse of ULIPs as high-premium investment tools.
ULIPs vs Other Tax-Saving Options
ULIPs combine market-linked returns with insurance coverage, while products like ELSS or PPF are purely investment-oriented.
- PPF → Safe, fixed returns, long lock-in
- ELSS → High-risk, high-return, shortest lock-in
- ULIP → Middle ground: market growth insurance tax benefits
A lot of people (myself included) have gone through phases of preferring one over another. There’s no perfect product — just the one that fits your goals.
Why ULIPs Became Popular Among Young Investors
- They offer disciplined investing
- They come with life insurance
- The switching option allows you to move between funds
- ULIPs are more transparent today than they were a decade ago
- Tax benefits under Section 80C & Section 10(10D) make them appealing
- They encourage long-term wealth building
One of my favourite things about ULIPs is the forced patience.
Markets may move wildly, but the lock-in ensures you stay invested long enough to see real growth.
Also Read: The Forgotten Tax Benefit for First-Time Investors (Rajiv Gandhi Equity Savings Scheme)
Taxation of ULIP Withdrawals, Surrenders & Partial Withdrawals
1. Partial Withdrawals
Usually exempt after the 5-year lock-in, depending on policy terms.
2. Surrender before lock-in
Taxable — and you may lose some benefits.
3. Surrender after 5 years
Often tax-free if conditions of Section 10(10D) are met.
4. Death benefit
Always exempt for the nominee.
How Section 80C and Section 10(10D) Work Together
When you invest in ULIPs:
- Section 80C reduces your tax today
- Section 10(10D) protects your money tomorrow
One gives immediate benefit. The other gives long-term relief. That combination is rare in financial products.
Common Mistakes People Make With ULIP Taxation
- Not checking if premium exceeds the tax-free limit
- Assuming all ULIP maturity amounts are exempt
- Ignoring the 5-year lock-in
- Buying ULIPs only for short-term goals
- Not reading fund-switching rules
A little awareness saves a lot of disappointment later.
Also Read: The Retirement Payout Exemption You Can’t Afford to Ignore
Key Takeaways
- ULIPs offer tax benefits under Section 80C and Section 10(10D)
- Section 80C allows deduction on premiums up to ₹1.5 lakh"
- Section 10(10D) exempts maturity & death benefits
- Conditions apply for tax-free maturity, especially after Feb 2021
- ULIPs blend investment, insurance, & tax perks
- Best suited for long-term financial planning
Conclusion
ULIPs may seem complicated at first glance, but once you understand the tax sections behind them, they become much easier to evaluate. Both Section 80C & Section 10(10D) offer meaningful benefits that can support long-term wealth creation and financial protection.
And if you ever feel unsure about choosing a ULIP, understanding its tax rules, or planning your investments smartly, the experts at CallMyCA.com are always there to help you with clarity, patience, & genuine financial guidance.
