Finance Minister Nirmala Sitharaman, whilst presenting the Budget 2021, has proposed capital achieve on gains in Ulips and provide for the very same remedy as the unit of the equity-oriented fund. This is, nevertheless, topic to the quantity of premium paid in unit-linked insurance coverage plans (Ulips).
The maturity proceed from a life insurance coverage business is tax-free of charge. This is due to the fact the Clause (10D) of section 10 of the Act supplies for the exemption for the sum received below a life insurance coverage policy, such as the sum allocated by way of bonus on such policy in respect of which the premium payable for any of the years for the duration of the terms of the policy does not exceed ten per cent of the actual capital sum assured.
The FM has proposed that the exemption below this clause shall not apply with respect to any ULIP issued on or just after the 1st February 2021, if the quantity of premium payable for any of the prior years for the duration of the term of the policy exceeds Rs. 2.5 lakh.
“The fine print of the budget speech also says that to rationalize taxation of Ulips, it is proposed to allow tax exemption for maturity proceed of the Ulips having annual premium up to Rs 2.5 lakh. Further, in order to provide parity, the nonexempt Ulips shall be provided the same concessional capital gains tax regime as available to the mutual fund. Here we need to wait and see the details and its impact on the life insurance industry.” says Rakesh Goyal, Director, Probus Insurance, Insurtech Broking Company
Buying various policies will not aid due to the fact provisions have been introduced that if the premium is payable by a individual for more than one Ulip, issued on or just after the 1st February 2021, exemption below this clause shall be readily available only with respect to such policies aggregate premium whereof does not exceed the quantity of Rs 2.5 lakh, for any of the prior years for the duration of the term of any of the policy.
It implies, investment in Ulip, above the specified quantity, will be treated as a capital asset. There will be deemed taxation of profit and gains from the redemption of Ulips to which exemption below clause (10D) of section 10 of the Act does not apply as capital gains.
Such Ulips will have the definition of an equity-oriented fund in section 112A so as to provide the very same remedy as a unit of the equity-oriented fund. Thus provisions of section 111A and 112A would apply on sale/redemption of such Ulips.