Business

ULIPs tax exemption linked to premium

Unit Linked Insurance Plan ULIP is shown on a conceptual business photo  

Tax exemption on maturity proceeds of unit-linked insurance plans (ULIPs) offering components of both life insurance and investment, in debt and equity, will be available only if the annual premium paid is up to ₹2.5 lakh. The proposal will apply to ULIPs purchased on or after February 1.

However, the amount received on death, by nominee, will continue to remain exempt without any limit on the annual premium.

“The Budget endeavours to selectively bring in taxation parity between life insurance companies and mutual funds,” said Rushabh Gandhi, deputy CEO, IndiaFirst Life Insurance.

Under existing provisions of the Income Tax Act, there is no cap on the amount of annual premium paid by any person during the term of the policy. Stating this, the Budget documents said “High net worth individuals are claiming exemption under this clause by investing in ULIP with huge premium. Allowing such exemption in policy/policies with huge premium defeats the legislative intent... to provide benefit to small and genuine cases of life insurance.”

Now, ULIPs for which the annual premium paid is over ₹2.5 lakh would be treated as equity-oriented funds. The rate of tax will depend on period of holding.

Another announcement significance was the proposal to raise the foreign direct investment limit from 49% to 74% in insurance firms.

“Under the new structure, the majority of directors on the board and key management persons would be resident Indians, with at least 50% of directors being independent directors, and specified percentage of profits being retained as general reserve,” Finance Minister Nirmala Sitharaman said.

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Printable version | Apr 20, 2021 1:31:54 AM | https://www.thehindu.com/business/ulips-tax-exemption-linked-to-premium/article33721825.ece

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