Capital Gains Tax on ULIP Income Under the Last Budget


NEW DELHI: The government did not impose any new tax on unit-linked insurance schemes (ULIP), but simply implemented last year’s budget announcement through a circular, Tax Department sources said Monday.
The 2021 finance law also inserted a provision in the income tax law to make income from ULIPs taxable as capital gains, just like the redemption of mutual funds. He had also delegated to the Center the power to prescribe a method of calculating capital gains, although he had been notified of this on January 18.
The amendment had clarified that if there was more than one policy, the premium limit of Rs 2.5 lakh for one year would be applied by aggregating the premium of these policies, which required clarity, which been made by a circular published on January 19. Revenue Department sources said.
“They only prescribe and specify the method of calculating capital gains as mandated by the modification made by the 2021 finance law,” an official said.
The Finance Law 2021 provided that the amount received under ULIPs issued on or after February 1, 2021 will not be exempted if the annual premium exceeds Rs 2.5 lakh. “This provision was enacted to create a level playing field between investment in mutual funds and ULIP investment. In the case of mutual funds, redemption units are subject to capital gains tax. However, in the case of ULIP, the surrender was exempt, even though the insurance part of the premium was much lower and the investment part of the premium was high. This amendment by the 2021 finance law has ensured that mutual fund shares and ULIPs operate on the same footing,” explained a source.
A blanket exemption has been granted for cases where the annual premium reaches Rs 2.5 lakh per annum so that the premium paid for the life insurance part is not affected.

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