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  • Insurance Union Budget clears up ambiguity regarding ULIP taxation

    Union Budget clears up ambiguity regarding ULIP taxation

    Investors investing more than Rs.2.50 lakh in ULIPs will have to pay capital gains tax on redemption proceeds.
    Suhail Chagla Feb 3, 2025

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    The government has made important changes to the tax rules for ULIPs and other insurance policies. Previously, there was some confusion about treatment of taxation on ULIPs and traditional products where the premium amount exceeds Rs.2.50 lakh in ULIPs and Rs.5 lakh in other policies.

    Currently, the maturity proceeds are tax free if an investor pays a premium of less than Rs.2.50 lakh or 10% of the sum assured on ULIPs and Rs.5 lakh or 10% of the sum assured on other policies.

    The confusion was that if an investor pays an annual premium of Rs.3 lakh in ULIPs, he will have to pay tax only on units acquired on the remaining Rs.50,000.

    The proposed changes have cleared the air by saying that if a ULIP or traditional policies do not meet Section 10(10D) conditions, the gains on maturity amount will be taxed.

    If the total premium exceeds Rs. 2.5 lakh per annum on ULIPs or Rs.5 lakh on traditional policies, the gains on maturity amount will be considered as capital gains for taxation in ULIPs and will be added to income from other sources in other insurance policies .

    These new rules apply to ULIPs issued after February 1, 2021, and will come into effect from April 1, 2026.

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