Tax on ULIP: If you deposit more than 2.5 lakh premium annually in ULIP plan after the announcement of the budget, then capital gains will be taxable. Earlier it was completely tax free.
In this budget, Finance Minister Nirmala Sitharan has made two such announcements, on which there is confusion among the investors. Like EPFO, tax has also been applied on ULIP (Unit Linked Insurance Plan). Its limit is also 2.5 lakh rupees. In such a situation, the investors do not understand when they have to pay tax and what are the rules for taxation. Before knowing the tax related rules, tell us that ULIP is such a means of investment which is a combination of insurance and investment.
ULIP was still under EEE (exempt, exempt, exempt) category. Meaning, you get the benefit of income tax deduction by investing in it. As we said this is also an investment scheme, so the interest income is also tax free as well as the amount received on maturity is also completely tax free. In Budget 2021, Nirmala Sitharan announced taxation of ULIPs. If someone’s premium is less than 2.5 lakh in the entire financial year, then under the EEE category, they will continue to get tax benefits in all three phases. If the annual premium is more than that, then the investor will be taxed.
What changes in the tax rules on ULIPs?
At present, investing in ULIPs was more profitable than mutual funds, as it was completely tax free. Now ULIP Schemes will also be taxed like mutual funds. Like mutual funds, capital gains tax will have to be paid on withdrawal in ULIPs. There are two types of capital gains tax. Capital Gain Tax is 15% on withdrawal within 12 months. Long term capital gains tax is 10% on withdrawal after 12 months. Capital gains tax up to 1 lakh has been kept in it. The same rule will now apply to ULIP maturity. However, its only session is that the annual premium amount should be 2.5 lakh or more.
5 years lock-in period
After this announcement, there is still some confusion between insurance companies and tax experts. They say that in ULIP plans, the investor has the option to choose between a debt fund and an equity fund. However, during the policy period, he can shift to each other. Currently, there is doubt on this issue. This rule has been implemented from 2 February 2021. If withdrawal from ULIP is done then the lock-in period is of 5 years.
