NEW DELHI: The federal government has not imposed any new tax on unit-linked insurance policy (ULIPs) however has merely carried out final 12 months’s Budget announcement by a round, tax division sources mentioned on Monday.
Finance Act 2021 additionally inserted a provision within the Income Tax Act to make revenue from ULIPs taxable as capital gains, similar to redemption from mutual funds. It had additionally delegated energy to the Centre to prescribe a technique of calculation of capital positive aspects, whereas it was notified on January 18.
The modification had specified that if there’s a couple of coverage, the Rs 2. 5-lakh premium restrict for a 12 months could be utilized by aggregating the premium of such insurance policies, which required readability, which was carried out by a round issued on January19, income division sources mentioned.
“They solely prescribe and make clear the strategy of calculation of capital positive aspects as man- dated by the modification carried out by the Finance Act 2021,” an official mentioned.
The Finance Act 2021 offered that the quantity acquired beneath ULIPs issued on or after February1, 2021 is not going to be exempted if the annual premium exceeds Rs 2. 5 lakh. “This provision was enacted to create a level-playing area between mutual fund funding and ULIP funding. In case of mutual funds, the redemption models are charged to capital positive aspects tax. Nonetheless, in case of ULIP the redemption was exempt, although the insurance coverage a part of the premium was a lot decrease and the funding a part of the premium was excessive. This modification by the Finance Act 2021 ensured that each mutual fund models and ULIPs function on the identical footing,” a supply defined.
A normal exemption was offered to these instances the place annual premium was as much as Rs 2. 5 lakh in a 12 months in order that premium paid for all times insurance coverage half doesn’t get hit.