ULIP Tax Saving Limit: To save tax on ULIPs, it's important to keep the total annual premium below Rs. 1 lakh. Any premium above this limit is subject to capital gains tax on the maturity benefit.

ULIPs were previously considered a package that offered the best in insurance, market returns, and tax-free maturity. Now, with the new tax rules, its benefits have become significantly limited. Initially, people found this all-in-one plan more convenient.

The new rules on ULIPs have had the biggest impact on tax exemptions. Now, under Section 80C, only an annual premium of Rs. 1.5 lakh is eligible for deduction, and that too only if the premium is within 10% of the sum assured.

Additionally, the policy must be in operation for at least five years; otherwise, the tax benefit is lost. Changes made after 2021 have also affected the maturity benefit of ULIPs. Previously, the entire amount was tax-free.

But now, this benefit is available only if the total premium across all policies is less than ₹2.5 lakh per year. Anything above this limit results in the ULIP proceeds being taxed like mutual funds. This ₹2.5 lakh limit applies not to a single policy, but to the total amount of all ULIP policies held in your name.

Once this limit is exceeded, ULIP proceeds are subject to a 12.5% ​​LTCG tax. This exemption was previously a significant tax-free option for high-net-worth individuals, but now it has almost disappeared. A large portion of the premium initially goes toward company charges, slowing the value of the policy.

The five-year lock-in period makes it impossible to withdraw funds when needed, which proves inconvenient for many investors. The high charges also have a lasting impact. ULIP returns are often lower than those from direct mutual funds, as fund management and policy charges eat into the returns.

However, one thing remains the same: the amount received upon the policyholder's death is still tax-free and has not changed. A good option is to keep insurance and investment separate. Buy term insurance for essential security and choose a scheme like a mutual fund for investment.