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EEE Tax Advantage For Ulips

Financial plans, known as unit-linked insurance plans (ULIPs), combine insurance advantages with wealth-building. Additionally, they are tax-saving investments that can dramatically lower an investor’s taxable income.

ULIPs are one of the finest solutions for assesses who do not wish to be subject to taxation at any stage of the investment, from parking the cash in the product to withdrawing it, because they fall under the category of exempt-exempt-exempt (EEE) investments.

Your regular premium is divided into a component that pays for your insurance coverage and a portion that funds various investment vehicles. The policyholder can invest in high-risk, low-risk, or medium-risk instruments. Equity, debt, or a combination of investments are available to policyholders. Policyholders can also transfer funds between devices to meet changing financial goals.

What are investments that are exempt-exempt-exempt?

Exempt-exempt-exempt instruments, as described above, are tax-saving investments that provide tax advantages at each of the three stages of investing. The beginning of the investment process, when you park your money in the asset of your choice, is referred to as the investment phase. Generally, the amount invested in the tax-saving business can be deducted from gross income.

The accumulation phase is where the assets continue to pay returns in interest or dividends, which add together to create a sizable corpus. Gains that have accrued are also not subject to tax.

Advice: Evaluating the premium prices using an online ULIP calculator is suggested to stay on top of the costs and its rewards in return.

The withdrawal phase:

Lastly, after the conclusion of the investment term, the investor is given the available corpus according to the terms of the investment. Additionally, this lump sum payment is not taxed.

How do ULIPs function?

Unit-linked insurance plans provide both – life insurance protection and money-building. You must pay an insurance premium to the insurer to invest in unit-linked insurance plans. Your insurance coverage is partly paid for with this premium, and the other portion is invested in market-linked products.

Gains are accumulated throughout the investment period based on the state of the market. After the period, you may withdraw the corpus, which comprises the invested premium and any gains thereon. Further payments may be made depending on whether the investor lives to see the investment’s maturity or receives several ULIP tax benefits.

How do ULIPs provide investors with exempt-exempt-exempt benefits?

Here is how ULIPs give investors EEE tax advantages:

According to Section 80C, the premium you pay for investing in unit-linked insurance plans is deductible from your overall income. The deductible amount is limited to Rs. 1.5 lakhs.

According to the terms of Section 10, the maturity or death benefits received from a ULIP’s insurance component are similarly excluded from taxation (10D).

Additionally, the market-linked investment component’s long-term capital gains are tax-free.

Cost-effective ULIP on taxes:

1. Tax deductions for ULIP premiums:

Section 80C of the Income Tax Act allows for a tax deduction of up to 1.5 lacs for dividends paid to support ULIP plans. You can reduce your taxable income by subtracting your total premiums for ULIPs from your yearly income. Your tax burden may decrease, and you can move to a lower tax bracket altogether.

2. Partial withdrawals from ULIPs:

This option further equips policyholders to handle a variety of emergencies and afford a necessary home improvement or an exotic family vacation. A 5-year lock-in term applies to ULIPs, after which the policyholder may withdraw funds based on needs or objectives. A ULIP’s partial withdrawals are entirely tax-free. This frees the policyholder to take care of their basic needs and occasionally indulge without increasing their tax burden.

3. ULIP Maturity Fund:

Under Section 10(10D) of the Income Tax Act, the corpus accumulated throughout a ULIP is tax-free. When a fund matures, the amount that the policyholder receives is free of tax obligations. This prevents further taxation from eroding the enviable ULIP profits from your long-term, wise investing choices.

Note: From FY 2020-21, there was a slight change in the levying of taxes. A new tax regime was now available for taxpayers, with reduced tax rates and reduced deductions and exemptions. For the best ULIP tax benefits, policyholders should choose the correct tax regime for their situation.


Although market-based investments like mutual funds have gained popularity in recent years as a vehicle for investing, the capital accumulated through a mutual fund scheme is still subject to the Long-Term Capital Gains Tax (LTCG). On the contrary, ULIPs are immune from LTCG, giving them a significant advantage over similar financial vehicles.

The funds received at plan maturity, the periodic partial withdrawals that may be made, and the regular premiums paid to finance ULIPs are all exempt from taxes. Due to these three tax exemptions, ULIP plans are considered EEE (exempt, exempt, exempt).

With reasonable premiums, ULIPs can be used to accomplish a variety of short- and long-term objectives. Additionally, ULIPs let you enjoy the ULIP tax benefits of wise financial planning without worrying about the tax implications of your gains.

‘Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale. ‘

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