Budget 2021: Important news for those who invest in Unit Linked Insurance Policies (ULIPs). In the budget, the government has now decided to levy tax on ULIPs.
New Delhi: Budget 2021: There is important news for those investing in unit linked insurance policies (ULIPs). In the budget, the government has now decided to levy tax on ULIPs. If you pay a premium of more than 2.5 lakh rupees in a year in ULIP, then the exemption under section 10 (10D) has been removed. Meaning, now you have to pay tax on the maturity amount, but will everyone come under this scope, understand this.
Tax on ULIPs, relief to whom, whose misery?
However, there is news of relief for those who have already taken ULIPs. Because this rule will not apply to existing ULIPs. This will be applicable only on policies sold after 1 February 2021, meaning the premium amount above 2.5 lakh will be taxed. Its capital gains will be taxed in the same way as equity oriented mutual funds are taxed. That is, these will be taxed at 10 percent.
Why was ULIP taxed?
According to the current provisions of the Income Tax Act, there is no cap on the amount of premium that any policyholder can pay annually during the term of the policy. Till now, after the initial lock-in period of 5 years, ULIP returns are exempted from tax. This exemption is available under section 10 (10D). This section gives exemption for the amount received under the life insurance policy. So it has been seen that many money investors used to invest in ULIPs to earn tax-free returns.
Wealthy investors were taking the wrong advantage!
Tax experts say that section 10 (10D) was used for tax-free income on investment by earning more and using HNIs insurance policy. This thing also made a difference between ULIP and other investment products, and which does not fulfill its purpose. In a way, the tax benefit of ULIPs compared to equity mutual funds has come to an end with this move of the Finance Minister. Meaning now the gains from ULIPs will be taken as capital gains of equity mutual funds. According to this, tax will also be levied accordingly.
What is ULIP?
This is a unit linked insurance plan. This is a product that gives double benefit. In this, the investor gets both returns and insurance cover. Insurance companies sell it. When an investor puts money into it, a part of it is kept for insurance coverage and the other part is invested in debt and equity. After a time, the investor also gets a lump sum at maturity and on death the sum assured is also paid. However, if the policyholder dies, then there will be no tax on the amount.
The combination of insurance and investment in this product comes with a lock-in period of 5 years. Customers are allowed to invest in large, mid or small cap, debt or balanced investments according to the risk. Along with this, there is also the facility to switch to different funds.
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