Income tax information: How the earnings on redemption of ULIP insurance policies are taxed?

I bought a single premium ULIP in 2015 the place the premium paid exceeded 10% of the sum assured. On maturity, I’ve gained Rs. 1,17,377/- over the premium paid. The insurance coverage firm has deducted tax on the time of fee of the maturity proceeds. Will this acquire be taxed beneath Section u/112 or 112A? As an alternate can this acquire be taken beneath Income from different sources additionally? Even if I take this acquire in Income from different sources, as my whole taxable earnings after all of the deductions Under Chapter VI A will probably be lower than 5 lakh I’ll get the advantage of Sec87A and can find yourself having ‘Nil’ Liability. On making use of Sec112 whether or not listed price needs to be calculated on the entire single premium of two,00,000.00 or?

ULIPs are mainly life insurance coverage insurance policies and revel in exemption beneath Section 10(10D) on maturity proceeds supplied the premium paid didn’t exceed 10% of the sum assured for any of the premium paying phrases.

There was no readability on how the maturity proceeds of ULIP insurance policies would get taxed in case the premium paid exceeded 10% of the sum assured. Part readability was supplied when the tax legal guidelines had been amended in 2021 to supply for taxation of among the ULIP insurance policies, the place the premium paid for such insurance policies exceeded 2.50 lakh in a yr, issued after 1 st February 2021.

For these insurance policies, the distinction between premium paid and maturity proceeds is to be taxed as equity-oriented schemes beneath Section 112A and taxed at a flat price of 10% after the preliminary one lakh which is to be taxed at zero price. No indexation is allowed in respect of such insurance policies.

However, there’s nonetheless no readability concerning the taxation of the ULIP insurance policies which aren’t coated beneath Section 112A. Since the required ULIP insurance policies are handled as capital belongings for the aim of Section 112A, for my part non specified ULIP insurance policies must also be handled as capital belongings and be taxed beneath Section 112 if they’ve been held for greater than three years.

So the distinction of ₹1,17,377/- will probably be long-term capital features and taxed beneath Section 112 after making use of the indexation on the only premium paid. In my opinion, the distinction can’t be taxed beneath the pinnacle “Income from different Sources.”

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Updated: 21 Jul 2023, 11:44 AM IST