ULIP tax remedy ambiguity cleared in budget 2025
The Union finances 2025 has delivered an critical modification when it comes to the taxation of Unit linked insurance guidelines (ULIPs).
This brings a whole lot-needed clarity considering the fact that thus far, the tax treatment of ULIPs changed into ambiguous.
An example would be when rates exceed positive thresholds.
The trendy explanation classifies ULIPs as capital assets, with proceeds taxed below 'capital profits' rather than 'profits from other assets' like earlier.
Taxation of Unit lifestyles insurance coverage Proceeds (ULIPs)
Section 10(10D) of the profits Tax Act furnished an exemption for any sum obtained beneath a existence coverage coverage. This included bonuses as nicely. The exemptions are difficulty to the following conditions, as according to a monetary explicit report:
a) The premium payable for any of the years in the course of the phrases of the policy (lifestyles coverage or ULIP) issued on or after 01.04.2012 ought to not exceed 10% of the real capital sum assured.
b) the quantity of premium or aggregate quantity of top rate payable at some point of the time period of such policy or policies should no longer exceed ₹2,50,000 (for Unit related insurance policy) or ₹five,00,000 (for different guidelines) for policies issued after certain dates.
If these conditions are not fulfilled, the sum received under an coverage coverage may be taxed as capital gains (for ULIP) or earnings from other resources (for guidelines other than ULIP).
If the exemption under phase 10(10D) does no longer observe, the sum obtained under both ULIP and other coverage guidelines shall be chargeable to tax beneath the head 'capital profits' or 'profits from other sources', respectively, consistent with the document.
Vibha Padalkar, MD and CEO of hdfc life stated, "presently unit linked coverage plans (ULIPs) issued on or after Feb 1, 2021, with an mixture annual top class above Rs. 2.5 lakh, which are not exempt beneath phase 10(10D), are taxable as capital gains. We now welcome the readability on the taxability of non-exempt ULIPs, issued earlier than february 1, 2021, as capital profits, by way of rationalisation of applicable profits tax provisions."
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