I purchased two single premium Ulip insurance policies as follows: the primary on 26 July 2011 for ₹1 lakh ( ₹1.25 lakh sum assured) and the second on 7 May 2014 for ₹1 lakh ( ₹1.25 lakh sum assured). I surrendered the insurance policies on 9 January (i.e. after over 5 years) and acquired ₹2.25 lakh and ₹1.8 lakh, respectively (much less TDS at 3.75%). I had not claimed 80C profit within the 12 months of funding. I’m within the 30% tax slab. How is the profit quantity to be thought of within the revenue tax challenge for submitting return for evaluation 12 months 21-22? Will or not it’s added to my different revenue and taxed as per slab charges or is it a long-term capital achieve? What would be the tax charge and the associated fee inflation index that must be thought of to reach at web profit achieve?
As per Section 10(10D) of the Income Tax Act, 1961 (the I-T Act), the sum acquired below a life insurance coverage coverage (together with give up worth) which is issued after 1 April 2003 however on or earlier than 31 March 2012 and the place the premium payable for any of the years doesn’t exceed 20% of the capital sum assured, is exempt from tax.
Further, the sum acquired below a life insurance coverage coverage which is issued on or after 1 April 2012 and the place the premium payable for any of the years doesn’t exceed 10% of the capital sum assured, is exempt from tax.
Since the premiums paid by you exceeded 20% (for the coverage issued in 2011) and 10% (for the coverage issued in 2014) of the capital sum assured, the lumpsum quantity acquired by you upon give up of the coverage in 2021 shall be taxable in your arms with out Section 10(10D) exemption.
Taxability of revenue from unit linked insurance coverage plan (Ulip), which doesn’t qualify for exemption below Section 10(10D) on account of extra premiums paid, isn’t expressly specified within the regulation.
However, it may arguably be taxed as capital achieve/loss in your arms as Ulip could also be thought of as a capital asset as per basic ideas. As the Ulip items have been held for greater than 36 months previous to the sale, the Ulip items will qualify as a long-term asset. The resultant achieve or loss arising out of sale of such Ulip items could be taxable as LTCG or LTCL (long-term capital loss) in your arms. The LTCG or LTCL from give up of Ulip must be computed because the distinction between web sale proceeds (sale proceeds after deducting incidental bills) and the listed value of acquisition. The listed value of acquisition of the asset in your case could be calculated as value of acquisition / value inflation index (CII) of 12 months of acquisition x CII of 12 months of sale.
The CII prescribed for FY2011-12, FY2014-15 and FY2020-21 are 184, 240 and 301, respectively. The tax is payable at 20% (plus relevant surcharge and cess) on the ensuing LTCG. Further, any tax deducted at supply might be claimed as a deduction from the ultimate tax legal responsibility.
Also, a rollover exemption might be sought by you towards the above referred LTCG below Section 54F of the Act by buying or developing a residential home property in India, topic to the prescribed situations and timelines.
Parizad Sirwalla is companion and head, world mobility companies, tax, KPMG in India.
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