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Taxation of unit-linked insurance Policy (ULIPs) Amendment: Budget -2021

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Taxation of unit-linked insurance Policy (ULIPs) Amendment: Budget -2021

Taxation of Unit linked Insurance Policy (ULIP): In order to rationalize taxation of ULIP, it is proposed to allow tax exemption for maturity proceed of the ULIP having annual premium up to 2.5 lakh.


For annual premium above 2.5 lakh for ULIPs, the maturity benefit will now be taxed as Capital Gains


However, the amount received on death shall continue to remain exempt without any limit on the annual premium.


The cap of 2.5 lakh on the annual premium of ULIP shall be applicable only for the policies taken on or after 01.02.2021.


 Further, in order to provide parity, the nonexempt ULIP shall be provided same concessional capital gains taxation regime as available to the mutual fund.


Long-Term Capital Gains (LTCG) arising out of the sale of units of equity-oriented mutual fund schemes are taxed at 10 % if the LTCG exceed 1 lakh in a financial year (gains up to January 31, 2018 being grandfathered).


However, the proceeds from ULIPs of insurance companies (including early surrender / partial withdrawals) are exempted from income tax under Section 10(10d) of the Income Tax Act.


So, even though ULIPs invest in equity stocks, just like mutual funds, they had an advantage, which is now being partially taken away. ULIPs.


However, still enjoy the advantage of tax deduction under Section 80C of the Income Tax Act on the premium paid, something which is enjoyed only by ELSS (tax-saving funds).

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