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Tax treatment of ULIP's

Pradeep S (student) (32 Points)

24 June 2010

Can anyone pls clarify about the tax treatment of ULIP's at each stage - 1. Investment, 2. Withdrawal / closure midway and 3. On maturity? Is there any specific exemptions for ULIP's?

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James cuck (SEO) (29 Points)
Replied 24 June 2010

The existing tax treatment of Ulips is beneficial as it helps in the flow of funds to the infrastructure sector, besides contributing significantly to the capital market”, said R Kannan, member-actuary, Irda. The existing tax treatment of Ulips is beneficial as it helps in the flow of funds to the infrastructure sector, besides contributing significantly to the capital market”, said R Kannan, member-actuary, Irda.

Income Tax Return

Govind (Professional) (174 Points)
Replied 24 June 2010

Tax Treatment of ULIPS having Sum assured more than equal to 5 times of annual premium is same as ordinary Life insurance policy, i.e. available for deduction u/s 80C in threshold limit of Rs. 1,00,000. - On Investments

When we withdrawl with in 3 yrs of investments in ULIPS shall be chargable to tax

maturity from any Life insurance products/ULIPS is exempt u/s 10(10 D), if such policy is qualify for deduction u/s 80C

Pradeep S (student) (32 Points)
Replied 24 June 2010

Thanks govind...

James your reply does not answer my query....

Sunil (Trader) (2611 Points)
Replied 18 September 2010

Section 80 C allows deductions for:-

(i) to effect or to keep in force an insurance on the life of persons specified in sub-section (4)

(x) as a contribution, in the name of any person specified in sub-section (4), for participation in the Unit-linked Insurance Plan, 1971 (hereafter in this section referred to as the Unit-linked Insurance Plan) specified in Schedule II of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002);

(xi) as a contribution in the name of any person specified in sub-section (4) for participation in any such unit-linked insurance plan of the LIC Mutual Fund [referred to in] clause (23D) of section 10, as the Central Government may, by notification in the Official Gazette, specify in this behalf;

The Premium you pay on Unit Link Plans of Insurance companies is for a contract on Life Insurance and therefore should be item no. 1. The payments in item 10 and 11 are too specific and are not termed as premium but as 'CONTRIBUTIONS'. If you read your receipts carefully, what you have paid is a LIFE INSURANCE PREMIUM. Item 10 and 11 seems to be limited to UTI and LIC Mutual Fund Only and not other insurance companies.

However, interpretations by ITOs will be inconsistent from officer to officer. If you terminate the contract of insurance in before 3 years your 80C deductions claimed in the past years is taxed as Income from other sources. If you terminate the participation in ULIPS of clause 10 and 11 within 5 years then your deductions get added to your IFOS.

Section 10D exemption will be available subject to conditions. You now only have to decide whether the sum you paid is as per clause 1, 10 or 11. Normally the scope of law cannot be widened so much to include what has not been specified.

Happy Pondering!

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