ULIP taxation is currently under the spotlight on the back of limited clarity post-Budget scenario. It has been more than a week since then the FM announced the Union Budget 2021.
The Unit-linked insurance policies are prevailing under the continuous spotlight ever since Union Budget. It is specially due to the annual premium rates above Rs 2.5 lakh.
All these ULIPs with above the range of Rs 2.5 lakh annual premiums will not hold the tax edge over the equity mutual funds beginning February 1.
Moreover, any profit made on the ULIP investments were not eligible for any kind of tax deduction as per the section 10(10D). The section 10(10D) exempts the tax applicable on proceeds collected under any life insurance policy.
Further, the long-term capital gains over Rs 1 lakh on other equity investments like shares/equity mutual funds attract 10% LTCG tax annually.
Now, why these ULIPs are suddenly under the spotlight?
Because the ULIPs with the premiums above Rs 2.5 lakh no longer will be eligible for the tax exemption. But also, it can be exempted for special cases. This will be handing over the proceeds to dependents in case of death of the policyholder.
Also, this exemption shall not be applicable to any ULIP issue on or after February 1, 2021.
This exemption may follow in case of any pending premium amount of previous year during the term of the policy. Also, it will be on the policies exceeding the limit of Rs 2.5 lakh.
ULIPs with premium amount below the level of Rs 2.5 lakh will have all the tax benefits under old tax regime.
Finance Ministry and the Central Board of Direct Taxes can still announce new details on gain computations and the taxes soon.
Check all the recent news updates and share market updates