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ULIPs with annual premiums more than Rs 2.5 lakh will cost tax like mutual funds – Ulip with Annual Premiums of Over Rs 2-5 Lakh to be taxed like equity mfs

In Budget 2025, essential items about such unit-linked insurance policy (ULIP) redemption or maturity have been clarified, where the total premium in a year is more than Rs 2.5 lakh in a year. If simply said, then all such ULIPS plans, which are not allowed tax exemption under section 10 (10D), will be considered as equity -based mutual funds. The budget of the budget states, “ULIP plans which are not exempted under section 10 (10D) of the Income Tax Act, will be included in the purview of equity based funds.”

We are telling you in detail here in detail what it means for ULIP holders, especially for ULIPHolders who have invested it after 1 February 2021.

What will affect the redemption on the tax front of ULIP in Budget 2025?

Say directly, in the budget 2025 it has been clarified that such ULIP plans which are not eligible for discounts under section 10 (10D) will be considered capital assets. The tax rule on this will be applicable to equity -based funds, so the profit obtained on redemption will be considered a capital gains. The FAQs of the Income Tax Department states, “If the terms of section 10 (10D) are not met, the amount received under the insurance policy may be taxed like a capital gains.”

Through the sale of shares, there is a 12.5 % tax on long term capital gains tax of more than Rs 1.25 lakh, while short -term capital gains (less than 12 months) are 20 % tax. Capital Gains Tax Structure was changed to the budget 2024.

What is section 10 (10D)?

Under Section 10 (10D) of the Income-Tax Act, if any amount is received under a life insurance policy (bonus or any such policy), then there is a tax exemption on it. Therefore, the amount of policyholders or their nominee as a maturity or claim amount is tax free. However, there are many conditions regarding this exemption. This is not available on the redemption or maturity of the life insurance policy, where the annual premium is more than 10 % of the Samy Esed. The total annual premium paid is more than Rs 2.5 lakh.

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