LTCG tax proposal: Is it time to switch from ELSS to ULIPs?

Arun Jaitley, on 1st February proposed the Long Term Capital Gains tax when announcing the Union Budget. Under the proposed LTCG tax, investors will be taxed 10% on amount exceeding Rs. 1 Lakh from the sale of equity shares/ equity-oriented fund units, including mutual funds, from 1st April, 2018.

This will result in a reduction of the profits which you earned as an investor in equity shares and mutual funds. Experts believe that the proposal of the LTCG tax will directly affect the investment people have in financial products which are effectively equity oriented.

Is it time to switch from ELSS to ULIPs?

Equity Linked Savings Schemes are very popular investment products as they provide good returns and tax exemptions right from the beginning. But with the proposal of LTCG tax, it is now time for ELSS to break under the mighty tax hammer. The investors are beginning to switch from ELSS to protect themselves from bearing an additional tax burden. The focus has now shifted to Unit Linked Insurance Plans.

Unit Linked Insurance Plans are still considered insurance products despite investing a portion of the premium in the financial market. When you invest in a ULIP, you earn profits based on the trend of the market with the addition of a live cover, protecting you against the eventualities of life. While ELSS was a good investment option, the added burden of 10% tax has made it less profitable. On the other hand, an insurance product like ULIP doesn’t come with any tax burden and the profits you earn are also exempt from tax. Over time, you earn hefty returns and increase your savings without having to give 10% to the government.

Tax Implications

If you have invested in any financial product, you know that the tax exemptions under Section 80C of the Income Tax Act play the most vital role in saving tax and effectively increasing your savings. But after the proposal of the LTCG tax, investment products like ELSS have lost their ability to avoid tax and now come with an added tax liability. Only insurance products are the ones who don’t fall under the hammer of the LTCG tax, and it would be only wise that investors switch from ELSS to ULIP.

Under the investment products that can allow you to save under Section 80C, ULIPs are now the only ones which invest in the financial market and don’t come with a tax liability on the returns you earn. With the new generation ULIP, you are provided with a plan which is way cheaper than any other insurance and investment products. While ELSS was an excellent option to invest in, it is now on the path of becoming a thing of the past. If you are planning to invest in an investment product, we advise you to opt for a ULIP rather than an ELSS.

Edelweiss Tokio Life’s ULIP plans 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. You can also save tax under section 80C and section 10(10D), without bearing the added tax burden of the LTCG tax.

Swati Tumar - Travel & Finance Writer   

Swati is a Writer in the day and an illustrator at night. Among her interests, she is quite fond of art and all things creative. She often indulges herself in creating doodles, illustrations, and other forms of content. She identifies herself as an avid traveler and shameless foodie.