Taxation on ULIP Plans - What You Should Know

Note on section 10(10D) of the Income-tax Act, 1961 (Act) with respect to Unit Linked Insurance Policy (ULIP) as amended by Finance Act, 2021

In Unit Linked Insurance Policy, the Investment Risk in investment portfolios is borne by the Policyholder

As per the provisions of section 10(10D) of the Income-tax Act, 1961 (Act), no exemption shall be available on any sum received under a life insurance policy, issued on or after 1 April 2012, where the premium payable for any of the previous year during the term of the policy exceeds 10 per cent of the actual capital sum assured.

Under the existing tax provisions of section 10(10D) of the Act, there is no cap on the amount of annual premium being paid by person during the term of the policy.

The Finance Act, 2021 amended section 10(10D) of the Act to provide that no exemption shall be available to any unit linked insurance policy (ULIP) issued on or after 1 February 2021 if the amount of premium payable for any of the previous year during the term of the policy exceeds Rs 2,50,000. As per the Amended fifth proviso to section 10(10D) of the Act, in case of multiple ULIPs issued on or after 1 February 2021, exemption under section 10(10D) shall be available only with respect to such policies aggregate premium whereof does not exceed Rs 2,50,000 for any of the previous years during the term of any of the policy.

Key Changes: Section 10(10D) of Income Tax Act, 1961 through Finance Act 2021

• The amended Section 10(10D) of the Income Tax Act to provide that no exemption shall be available to any unit linked insurance policy (ULIP) issued on or after 1 February 2021 if the amount of premium payable for any of the previous year during the term of the policy exceeds Rs. 2,50,000.
• If multiple ULIPs issued on or after 1 February 2021, to one policyholders where aggregate premium exceed Rs 2,50,000 for any of the previous years during the term of any of the ULIP policy no exemption shall be available at the time of maturity, surrender or partial withdrawal under Section 10(10D).
• Any profits and gains arising to a person from receipt of any sum at the time of maturity, surrender or partial withdrawal under such high value ULIP where premium exceed Rs 2,50,000 and it shall be taxable as capital gains in the year of receipt.
• Any sum received on death of the person will be exempted and no capital gain or tax would be levied under Income Tax Act.
• Securities transaction tax (STT) applicable on maturity or surrender or partial withdrawal of ULIP issued on or after 1 February 2021 (only on Section 10(10D) non-Compliant Policies)

The income tax is levied on all earning individuals who fall under a taxable income bracket. The income tax is paid to the Government of India and is charged annually. However, there are several tax deductions and exemptions that you can claim to lower your tax liability. The Income Tax Calculator helps you ascertain your tax output for a financial year based on your taxable income. This can help you plan well and save tax using the tax-saving deductions and exemptions, if possible. 

To know more about term plan, term insurance, long term savings visit PNB MetLife website.