Taxability of ULIP purchased after April 1, 2012 & before 1 Feb 2021

[MAHTAB KHAN]

Dear expert please suggest about this issue.

A ULIP purchase on 28-09-2014 for 10 years.

• Annual premium: Rs. 50,000

• Total premium paid: Rs. 5,00,000

• Sum assured: Rs. 3,50,000

• Maturity amount received on 29-09-2024: Rs. 12,80,557

• Net gain: Rs. 7,80,557

Since the sum assured is less than 10× the annual premium, will this maturity amount be taxable as capital gains or as other source.  Considering the policy was purchased before 1 Feb 2021.

[Ryan Vaz]

Since the ULIP was issued on 28-09-2014 and the sum assured is less than 10× the annual premium, Section 10(10D) exemption is not available.

However, capital gains taxation does NOT apply, because ULIPs are treated as capital assets only for policies issued on or after 1 Feb 2021.

Therefore, the net maturity gain is taxable as “Income from Other Sources”, after reducing premiums paid.

[Fahiyaz Ahmmed]

I fully agree with SIR Ryan Vaz’s view. Since the ULIP was issued on 28-09-2014, i.e., before 1 Feb 2021, it is not treated as a capital asset under Section 2(14).

As the sum assured is less than 10× the annual premium, exemption under Section 10(10D) is not available.

The special capital gains taxation for ULIPs applies only to policies issued on or after 1 Feb 2021.

Accordingly, the maturity proceeds cannot be taxed as capital gains.

The net gain (maturity value minus premiums paid) is taxable as Income from Other Sources.

NOTE- As per Section 2(14), a ULIP becomes a capital asset only if it falls within the 4th/5th provisos to Section 10(10D),

AI Summary

ULIP maturity proceeds taxable as income from other sources when issued before 1 Feb 2021 without the policy-proceeds exemption.
A ULIP issued on 28-09-2014 with sum assured below ten times the annual premium does not receive the policy-proceeds exemption. Policies issued before 1 February 2021 are not treated as capital assets except where specific provisos apply. Therefore the maturity gain (maturity proceeds minus premiums paid) is taxable as Income from Other Sources rather than as capital gains.