Taxability of ULIP

Ulip with Annal premium greater than 10 %(single premium) but less than 2.5 lakh Taxablity taken in sep 2012. Kindly give answer sir. I shall be highly thankful.

Hi @pankaj_lakhanpal

Premiums paid towards ULIP are eligible for deduction under section 80C. However, there are a few changes that were introduced in Budget 2021.

  • There is a capital gains tax that is proposed for ULIPs similar to equity-oriented mutual funds, where a tax will be levied at 10% on returns exceeding INR 1,00,000. This will apply to ULIPs that are not covered above and subscribed on or after February 1, 2021

Read more about ULIP - Unit Linked Insurance Plan ( Types, Tax Benefits and Comparison ) - Learn by Quicko

Thanks @Shrutika_Shah
But my question is ULIP taken in sept 2012 and single premium policy i. e 1 lakh . Now it matured and have gains greater than 1 lakh. Kindly give suggestion about its taxability

  1. If it is exempt under 10( 10 D ) but its premium is greater than 10 % of sum assured which violation of insurance plan under 10(10D)
  2. If not exempt than how it will taxable
    • LTCG with 10 % rate
    • or added to whole income and taxable according to slabe rate.

Kindly give answer i shall be highly thankful to you.

@Bharti_Vasvani if you can help here.

Hello @pankaj_lakhanpal,

Since you had purchased life insurance policy after 01/04/2012 and it was a single premium policy (hence premium more than 10% of sum assured) it is not liable for exemption under section 10(10D).

As the maturity proceeds are higher than INR 1,00,000 TDS under section 194DA at 5% will be deducted on the net income (Total proceeds- premium paid).

The net income shall be hence taxable under “Income from other sources” and taxed at slab rates.

Hope this helps!

what is the advantage of purchasing such kind of one time payment policy ?

@Bharti_Vasvani and @Shrutika_Shah thanks for replying. It helped me a lot. Understood but minor doubt it would be great help if you reply that also.

Also consider that this is ULIP not fully life insurance policy.
As Ulip gains are similar to MF and there is also LTCG now introduced on Ulip So why i cannot show its gains in LTCG which lower my taxability. As it is not fully insurance plan.

1 Like

@Bharti_Vasvani and @Shrutika_Shah kindly reply the above message it would be great help to me.

Hello @pankaj_lakhanpal,

The taxation on ULIP was updated from 1st February 2021 and the change in taxation is prospective. Since the policy purchased by you is prior to that date it would be taxed as Income from other sources only.

Hope this clarifies!

Thank a lot @Bharti_Vasvani