Maturity of ulip -exempt or taxable

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Somebody (Querist)
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29 March 2019 This is about single premium ULIP policy where single premium paid in FY 2010-11 is more than 20% of sum assured.
1. Amount received on maturity of ULIP is exempt or taxable ?
2. If taxable, itt is the amout of Total receipts or only Income is taxable?
Thanks

K Srinivas, CMA CS

K Srinivas, CMA CS (Expert)
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29 March 2019 1. Taxable as the premium exceeds 10% of sum assured

K Srinivas, CMA CS

K Srinivas, CMA CS (Expert)
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29 March 2019 2. Full amount will be taxable

Somebody

Somebody (Querist)
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30 March 2019 Many Thanks Dear Srinivas...
This is painful as per tax payers' views.
Isn't there any ruling otherwise...
ULIPs are basically Mutual Funds with small contribution towards life insurance... & Income from MFs is exempt u/s. 10 (38).
Can anybody enlighten??

Aashok Kumar Sharma online

Aashok Kumar Sharma

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03 August 2024 Under the Indian Income Tax Act, 1961, the tax treatment of maturity proceeds from a Unit Linked Insurance Plan (ULIP) depends on various factors, including the amount of premium paid and the sum assured. Here's how it works:

### **1. Tax Treatment of ULIP Maturity Proceeds:**

**General Rule:**
- **Section 10(10D) of the Income Tax Act** provides that the maturity proceeds of a ULIP are exempt from tax under certain conditions.

**Conditions for Exemption:**
- **Premium Limit:** For the exemption to apply, the premium paid should not exceed 10% of the sum assured (or 20% for policies issued before April 1, 2012).
- **Sum Assured:** The sum assured should be at least 5 times the annual premium for policies issued on or after April 1, 2012.

Given your case:

- **Single Premium Paid:** In FY 2010-11, you mentioned the single premium paid is more than 20% of the sum assured.

**Specifics:**
- **Single Premium Policies:** If the premium paid is more than 20% of the sum assured, then the ULIP will not qualify for exemption under Section 10(10D).

### **2. Taxability of Maturity Amount:**

**If Taxable:**
- If the premium exceeds the permissible limit, the maturity proceeds are taxable.
- **Taxable Amount:** The entire maturity amount (total receipts) is taxable.
- **Income Calculation:** The taxable income will be the amount received on maturity minus the total premium paid (including any premium paid in the past).

### **3. Ruling and Clarifications:**

**Supreme Court Ruling:**
- The Supreme Court, in cases such as **CIT v. Life Insurance Corporation of India (2015)**, has clarified that the maturity proceeds of ULIPs are taxable if the premium exceeds the prescribed limit.

**Comparison with Mutual Funds:**
- While mutual funds enjoy exemptions under Section 10(38) on long-term capital gains, ULIPs are primarily insurance products, and their tax treatment is governed by different rules.

### **Summary:**

1. **If the premium paid exceeds 20% of the sum assured (for policies issued before April 1, 2012),** the maturity proceeds are taxable.
2. **Taxable Amount:** The entire maturity amount is taxable.
3. **No Ruling for Exemption:** If the policy does not meet the exemption conditions, no specific ruling changes this.

For up-to-date information or specific cases, you may also refer to the latest circulars from the Income Tax Department or consult with a tax professional.

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