The Union Finances 2025 has launched an essential modification in terms of the taxation of Unit Linked Insurance coverage Insurance policies (ULIPs).
The Union Finances 2025 has launched an essential modification in terms of the taxation of Unit Linked Insurance coverage Insurance policies (ULIPs)
This brings much-needed readability since to this point, the tax therapy of ULIPs was ambiguous. An instance can be when premiums exceed sure thresholds.
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The most recent clarification classifies ULIPs as capital property, with proceeds taxed beneath ‘capital gains’ as an alternative of ‘income from other sources’ like earlier.
Taxation of Unit Life Insurance coverage Coverage Proceeds (ULIPs)
Part 10(10D) of the Earnings Tax Act supplied an exemption for any sum obtained beneath a life insurance coverage coverage. This included bonuses as properly. The exemptions are topic to the next circumstances, as per a Monetary Categorical report:
a) The premium payable for any of the years in the course of the phrases of the coverage (life insurance coverage or ULIP) issued on or after 01.04.2012 mustn’t exceed 10% of the particular capital sum assured.
b) The quantity of premium or combination quantity of premium payable in the course of the time period of such coverage or insurance policies mustn’t exceed ₹2,50,000 (for Unit Linked Insurance coverage Coverage) or ₹5,00,000 (for different insurance policies) for insurance policies issued after sure dates.
If these circumstances aren’t fulfilled, the sum obtained beneath an insurance coverage coverage could also be taxed as capital beneficial properties (for ULIP) or earnings from different sources (for insurance policies aside from ULIP).
If the exemption beneath Part 10(10D) doesn’t apply, the sum obtained beneath each ULIP and different insurance coverage insurance policies shall be chargeable to tax beneath the top ‘capital gains’ or ‘income from other sources’, respectively, in line with the report.
Vibha Padalkar, MD and CEO of HDFC Life mentioned, “Currently unit linked insurance plans (ULIPs) issued on or after Feb 1, 2021, with an aggregate annual premium above Rs. 2.5 lakh, which are not exempt under section 10(10D), are taxable as capital gains. We now welcome the clarity on the taxability of non-exempt ULIPs, issued before February 1, 2021, as capital gains, by rationalisation of relevant income tax provisions.”
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