In the budget introduced on 1st Feb 2018, Finance Minister Arun Jaitley introduced the LTCG (Long Term Capital Gains) tax on equity stocks and Mutual Funds. Going forward, you will have to pay a tax of 10% if you earn capital gains of more than Rs. 1 Lakh from equity stocks or equity Mutual Funds investments. In other words, it means that you will get only 90% value of your profits if they exceed Rs. 1 Lakh. For individuals who earn a regular salary and invest in Mutual funds and Equities for wealth accumulation, the LTCG would mean an additional tax burden.
However, if you are looking for a way out of paying the LTCG tax and still wish to grow your savings by investing in the market, Unit Linked Insurance Plans (ULIPs) are an ideal option. As the LTCG tax doesn’t extend to insurance products, all your earnings from ULIPs shall be tax exempt. While Mutual Funds had their advantages, experts think that the LTCG tax has made them an investment avenue which investors should avoid. The low cost of ULIPs with the addition of tax savings and life cover seems to be a viable option after this Union Budget.
Why are ULIPs a better option than Mutual Funds after the Union Budget
ULIPs are a mix of insurance and investment but are considered as a pure insurance product. Hence the premium paid towards a ULIP is deductible from your gross income under section 80C of the income tax act. Apart from this, the money you withdraw or the lump sum amount you get in case of death of maturity of the term is totally exempted from tax under section 10(10D), too.
When ULIPs are compared to Mutual Funds which have tightly regulated total expense ratios, the host of inbuilt features of ULIP can allow you to increase your wealth and earn long-term capital gains, and those without taxes.
Post this budget; ULIPs emerge as a tax-efficient investment with the added benefit of providing a life cover and a lump sum amount in case of death or maturity of the term. As the government has announced the LTCG tax, it would be wise that investors consider switching from Mutual Funds to ULIPs.
Edelweiss Tokio Life’s ULIP plans can allow you to increase your savings by investing a portion of your premium in the financial market. They are tailor-made to suit your lifestyle and are affordable with no hidden cost. Contact your financial advisors today to plan your future and avoid paying the LTCG tax on your earnings.