Capital gains tax in Ulips if premium exceeds Rs 2.5 lakh / year – Check details
Finance Minister Nirmala Sitharaman, when presenting the 2021 budget, proposed a capital gain on earnings in Ulips and provides for the same treatment as the equity-focused fund unit. This is however subject to the amount of the premium paid into unit-linked insurance plans (Ulips).
The maturity product of a life insurance company is tax free. In fact, clause (10D) of section 10 of the Act provides for the exemption of the sum received under a life insurance policy, including the sum allocated as a bonus on this policy to the ‘in respect of which the premium payable for any of the years during the term of the policy does not exceed ten percent of the actual sum insured.
The FM proposed that the exemption under this clause not apply to any ULIP issued on or after February 1, 2021, if the amount of premium payable for any of the preceding years during the term of the policy exceeds Rs. 2.5 lakh.
“The fine print of the budget speech also indicates that in order to rationalize the taxation of Ulips, it is proposed to allow a tax exemption for Ulips maturity products with an annual premium of up to Rs 2.5 lakh. In addition, in order to ensure parity, non-exempt Ulips will benefit from the same preferential tax treatment for capital gains as that available to the mutual fund. Here we have to wait and see the details and its impact on the life insurance industry. Says Rakesh Goyal, Director, Probus Insurance, Insurtech Broking Company.
Also read: Income Tax Calculator Fiscal Year: 2021-2022
Purchasing multiple policies will not help as provisions have been introduced that if the premium is payable by a person for more than one Ulip, issued on or after February 1, 2021, the exemption under this clause will not will only be available with respect to these fonts. of which does not exceed the amount of Rs 2.5 lakh, for one of the preceding years during the term of one of the policies.
This means that the investment in Ulip, above the specified amount, will be treated as an asset. There will be taxation of the profits and gains from the redemption of Ulips to which the exemption provided for in clause (10D) of article 10 of the Law does not apply as capital gains.
These Ulips will have the definition of an equity fund in section 112A in order to provide the same treatment as a unit of the equity fund. Thus, the provisions of Articles 111A and 112A would apply to the sale / redemption of these Ulips.