Clarity on taxability of amount received under Unit-linked Insurance Plans
Monies received from Unit-Linked Insurance Plans (popularly known as ULIPs) are exempt from tax unless the premium paid for one ULIP or the sum total of premium paid for multiple ULIPs is more than Rs. 2.5 lakhs for any year. The amount received on the maturity of such ULIPs is fully taxable.
However, the Income Tax Act did not specify the tax treatment of such income. Few taxpayers were considering such an amount as part of equity capital asset and were paying tax at a long-term equity capital gain rate, which currently is 12.5%. While others were adding this money as income from other sources and were taxing it at slab rates, leading to higher taxation in certain cases.
ULIPs to be considered as equity-oriented fund
Budget 2025 has now clarified that ULIPs, where the premium paid for one ULIP or sum total of premium paid for multiple ULIPs is more than Rs. 2.5 lakhs for any year, are capital assets and shall be treated as equity-oriented funds. Accordingly, any money received on maturity of such ULIPs shall be taxable at long-term equity capital gain tax rate of 12.5%.
By: Vishal Shah, SEBI Registered Investment Advisor and founder of Bachhat
Feb 2, 2025
Disclaimer: This is not a financial advice and the readers should reach out to registered investment advisors for any financial advice. Registration granted by SEBI, membership of BASL and certification from National Institute of Securities Markets (NISM) in no way guarantee performance of the intermediary or provide any assurance of returns to investors. Investment in securities market are subject to market risks. Read all the related documents carefully before investing.)
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