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ULIP Taxation to create level-playing field with MFs

January 25, 2022

ULIP Taxation to create level-playing field with MFs

Proceeds of high-premium Unit Linked Insurance Plans (ULIPs) has been made taxable to create a “level-playing field” with mutual funds, official sources said on Monday.

The Central Board of Direct Taxes (CBDT), that frames policy for the income tax department, had on January 18 notified the rules stating the method of calculation of capital gains as to ULIPs with yearly premium of more than ₹2.5 lakh and subsequently issued a circular the next day charting out various aspects of their taxation.

Income tax department sources let PTI know that the guidelines and rules were told by the CBDT to give effect to the announcement made concerning ULIPs in the last Union Budget.

These don’t bring any new taxation provision but only clarify the method of calculation of capital gains when it comes to redeeming ULIPs in specified cases, they said.

“The Finance Act of 2021 did revision in segment 10(10D) of the Income-tax Act following which the total got under ULIPs given on or after Feb 1, 2021, shall not be exempt if the annual premium payable for any year exceeds ₹2.50 lakh.

“This provision was enacted to create level playing yield between mutual fund investment and ULIP investment,” a senior I-T department official said.

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