ULIP Taxation: The government has changed the rules for high premium unit linked insurance policies (ULIPs). In the Lok Sabha on Tuesday, some provisions have also been made regarding the Finance Bill 2021 ULIPs passed with many amendments.
New Delhi: ULIP Taxation: The government has changed the rules for high premium unit linked insurance policies (ULIPs). In the Lok Sabha on Tuesday, some provisions have also been made regarding the Finance Bill 2021 ULIPs passed with many amendments. These changes will affect the people who invest huge amount in ULIP. Now they have to pay tax equal to equity mutual funds.
Strict on ULIPs with high premium!
The revised finance bill states that the minimum equity holding conditions will apply to ULIPs with high premiums. The actual finance bill said that ULIPs with an annual premium of more than Rs 2.5 lakh will not get the benefit of tax exemption on maturity under Section 10 (10) (D) of the Income Tax Act, 1961.
Equity Mutual Fund will be taxed at par
According to the revised rules, ULIP will be taxed at par with Equity Mutual Funds. As far as capital gains tax is concerned, in such a situation these high premium ULIPs will have to meet the minimum equity threshold, then they will be treated like equity mutual funds. This minimum threshold limit will have to be maintained throughout the term of the insurance policy.
Threshold limit set
According to the revised finance bill, if such ULIPs invest directly in equity, then their 65% asset should be in the stock market. If they do not invest directly in equity through instruments like ETFs, then their assets should be 90% in equity. If they fail to meet these conditions, then the capital gain received from them will be treated as capital gain from any other asset. Then if it is kept for less than 3 years, then it will be taxed, if you hold it for a long period, you will have to pay 20 percent tax with indexation.
What was announced in the budget
In Budget 2021 it was said that if you pay a premium of more than 2.5 lakh rupees in a year in ULIPs, then tax exemption available under section 10 (10D) has been removed. This rule will not apply to existing ULIPs. This will be effective only on policies sold after February 1 this year. Capital gains on these will be taxed in the same way as equity oriented mutual funds are taxed. That is, these will be taxed at 10 per cent.
