Profit from sip & ulip
This query is : Resolved
SANJAY KUMAR AGARWAL
(Querist)
16 August 2012
1. What is the treatment of Profit on Maturity/sale of SIP Investment.Is it fully exempted . Please explain.
2. What is the treatment of profit on Maturity/redemption/pre-maturity of ULIP . Is it exempted from tax.
2. What is the treatment of profit on Maturity/redemption/pre-maturity of ULIP . Is it exempted from tax.
17 August 2012
Profit from redemption of units purchased under SIP mode are exempt from tax if they have been held for a period of 12 months or more.
For computing the period of holding, each SIP instalment shall be treated individually.
For computing the period of holding, each SIP instalment shall be treated individually.
K Srinivas, CMA CS
(Expert)
17 August 2012
Taxability of ULIPs is there. You'd be aware that the Insurance Co buys Units every year from your premium paid and any dividend that is accrued with your account.
On redemption: The last year's units are taxed as short term capital assets and short term capital gains. While the other years' units are treated as long term capital assets.
Example: In a 5 yr ulip, units bought in the first 4 years are considered long term capital assets and the last year's units are short term capital assets. This is based on the holding period of units
On redemption: The last year's units are taxed as short term capital assets and short term capital gains. While the other years' units are treated as long term capital assets.
Example: In a 5 yr ulip, units bought in the first 4 years are considered long term capital assets and the last year's units are short term capital assets. This is based on the holding period of units
K Srinivas, CMA CS
(Expert)
17 August 2012
On surrender before the policy term or pre maturity:
Apart from being liable to capital gains as explained in the above post, you will alos be liable to pay tax on all the deductions that you availed so far for the ULIP premium.
Apart from being liable to capital gains as explained in the above post, you will alos be liable to pay tax on all the deductions that you availed so far for the ULIP premium.
Praveen Kumar Rathi
(Expert)
17 August 2012
As per income tax rules, any endowment/moneyback plan or ULIP (new or old) if surrendered before completion of 5 yrs will be taxable. I know that the lock in period is 3 yrs, but even if you surrender your policy before completion of 5th yr, the maturity amount is considered as your income for that year and is taxable.
Praveen Kumar Rathi
(Expert)
17 August 2012
TAX TREATMENT OF CAPITAL GAINS FROM SYSTEMATIC INVESTMENT PLANS (SIP)
Nature of capital gains arising to unitholder who has invested by way of SIP will depend upon the period of holding of units. There may be two situations-
i) Where SIP is closed and some / all units are redeemed ;
ii) Where SIP is not closed but some / all existing units are redeemed.
At the time of redemption it is impossible to understand as to which units are being redeemed. In this condition, for computing the capital gain chargeable to tax, the cost of acquisition and period of holding of units shall be determined on the basis of FIFO method.
Nature of capital gains arising to unitholder who has invested by way of SIP will depend upon the period of holding of units. There may be two situations-
i) Where SIP is closed and some / all units are redeemed ;
ii) Where SIP is not closed but some / all existing units are redeemed.
At the time of redemption it is impossible to understand as to which units are being redeemed. In this condition, for computing the capital gain chargeable to tax, the cost of acquisition and period of holding of units shall be determined on the basis of FIFO method.
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