ULIP Tax Benefits: Complete Guide 2025
Understand how ULIPs help you save tax under Section 80C and earn tax-free returns under Section 10(10D) of the Income Tax Act.
Section 80C
Tax deduction on premium paid
- Deduction up to ₹1.5 lakh per year
- Reduces taxable income
- Available every year you pay premium
Section 10(10D)
Tax-free maturity proceeds
- Entire maturity amount tax-free*
- No capital gains tax
- Death benefit also tax-free
Important Condition for Tax-Free Maturity
Section 80C: Tax Deduction on Premiums
Under Section 80C of the Income Tax Act, 1961, premiums paid towards ULIP policies qualify for tax deduction up to ₹1.5 lakh per financial year. This deduction reduces your taxable income, thereby lowering your tax liability.
Tax Savings Illustration
| Tax Slab | Tax Rate | Max Tax Saved* |
|---|---|---|
| ₹2.5L - ₹5L | 5% | ₹7,500 |
| ₹5L - ₹10L | 20% | ₹30,000 |
| Above ₹10L | 30% | ₹45,000 |
*Based on maximum deduction of ₹1.5 lakh under Section 80C (old tax regime). Actual savings depend on your total 80C investments.
Section 10(10D): Tax-Free Maturity
The maturity proceeds from ULIP are exempt from tax under Section 10(10D), provided certain conditions are met. This makes ULIP one of the few investment options offering completely tax-free returns.
Conditions for Tax Exemption
- For policies issued after 01-04-2012: Premium ≤ 10% of Sum Assured
- For policies issued before 01-04-2012: Premium ≤ 20% of Sum Assured
- Policy should complete minimum 5 years (lock-in period)
- Death benefit is always tax-free regardless of premium amount
New Tax Rule (Budget 2021)
For ULIPs issued on or after February 1, 2021, if the annual premium exceeds ₹2.5 lakh, the gains will be taxed as capital gains. This rule applies to the aggregate premium across all ULIPs held by an individual.
Calculate Your ULIP Returns
See how your ULIP investment can grow with tax-free returns.
Your investment will grow for 5 additional years without new contributions.
Deduct typical ULIP fees from calculation
Total Invested
₹12,00,000
Maturity Value
₹72,16,099
Wealth Gained
+₹60,16,099
(+501%)Investing ₹10,000/month for 10 years, then staying invested for 5 more years