Income Tax Calculator: EXPLAINED | Who can invest up to Rs 2.5 lakh in this Life Insurance Policy to save money

Income Tax Calculator: In budget 2021, Finance Minister Nirmala Sitharaman announced income tax exemption on maturity of ULIP (Unit Linked Insurance Plan) on up to Rs 2.5 lakh in a particular financial year. However, the question is can anybody invest up to Rs 2.5 lakh in a single financial year to save income tax outgo? As per the tax and investment experts, the answer is a big ''no'' because ULIP is in Section 80C of the Income Tax Act and hence one can save income tax outgo on up to Rs 1.5 lakh investment in one financial year only, which includes Provident Fund (PF), Employees' Provident Fund (EPF), Public Provident Fund (PPF), Post Office Tax Saving FD, etc. They said that the announcement of income tax exemption is on maturity of up to Rs 2.5 lakh investment, rest of the income tax rule will remain the same.

Speaking on the income tax rules applicable on the ULIP; SEBI registered tax and investment expert Jitendra Solanki said, "There is no income tax rule change in regard to this Life Insurance Policy ULIP. One can avail income tax benefit under Section 80C as it had been before 1st February 2021 but as per the new announcement, one will get income tax exemption on ULIP maturity on up to Rs 2.5 lakh investment in a financial year."

Highlighting how one can avail the benefit announced in the budget 2021 Kartik Jhaveri, Director — Wealth Management at Transcend Consultants said, "Those who are not amongst the salaried can invest in ULIP up to Rs 2.5 lakh availing Rs 1.5 lakh Section 80C benefit and then maturity benefit on the same. However, they won't be able to claim income tax benefit on beyond Rs 1.5 lakh invested in ULIP. They will get income tax exemption on the maturity. Those who are salaried, should first calculate how much their Section 80C limit is being used in EPF or PF. Then rest of the amount they can think of investing in ULIP provided the investment is for very long-term say more than 15 years." He said that one going for such a longer period of ULIP investment can expect to get 8-9 per cent return on one's money, which is in sync with the EPF interest rate, which is currently 8.5 per cent.

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While presenting the Union Budget 2021, Finance Minister Nirmala Sitharaman had said, "In order to rationalise taxation of ULIP, it is proposed to allow tax exemption for maturity proceeds of the ULIP having annual premium up to ` 2.5 lakh. However, the amount received on death shall continue to remain exempt without any limit on the annual premium. The cap of Rs 2.5 lakh on the annual premium of ULIP shall be applicable only for the policies taken on or after 01.02.2021. Further, in order to provide parity, the nonexempt ULIP shall be provided the same concessional capital gains taxation regime as available to the mutual fund."