ULIP TAXABLILTY ?

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AMIT (Querist)
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24 July 2010
EXAMPLE,

I PURCHASE A ULIP PLAN OF ICICI
AND PAY ANNUAL PREMIUM OF RS.50000

I WANT TO KNOW THE FOLLOWING QUERY

Q1. IF I PAY THE PREMIUM FOR 3 YRS AND SURRENDER IN THE 4TH YEAR,
WILL I BE LIABLE FOR DEDUCTION UNDER 10(10D) AND 80 C ? PLEASE ALSO EXPLAIN ME MORE ABT 10(10D) APPLICABLITY

Q2. IF I JUST PAY 1ST YEAR PREMIUM AND SURRENDER IT IN THE 4 TH YEAR WHAT WILL HAPPEN ??

PLEASE EXPLAIN POINT WISE AND IN DETAIL, THANKS

CA. BIJENDER KR. BANSAL

CA. BIJENDER KR. BANSAL (Expert)
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24 July 2010 pLEASE READ THE ARTICLE ON BELOW LINK.

IT IS USEFUL FOR YOU FOR UNDERSTANDING THE
CONCEPT OF TAXABLITY OF ULIP.

http://www.rediff.com/money/2007/jul/13tax.htm

AMIT

AMIT (Querist)
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25 July 2010 Very thankful to you sir,

AMIT

AMIT (Querist)
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25 July 2010 Sir,

can u please answer my query on the basis of my condition

condition 1 and 2 please help me

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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02 August 2025 Sure! Here's a detailed explanation of ULIP taxability based on your two conditions:

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### Background: ULIP (Unit Linked Insurance Plan) Tax Treatment

* ULIP premiums are eligible for deduction under **Section 80C** (up to Rs. 1.5 lakh per year).
* The maturity proceeds or surrender proceeds from ULIP are eligible for exemption under **Section 10(10D)**, subject to certain conditions.

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### Your Queries:

#### Q1: Paying premium for 3 years and surrendering in the 4th year

* **Premiums paid:** Rs. 50,000 annually for 3 years → Rs. 1,50,000 total.
* You can claim deduction under **Section 80C** for the premiums paid in all these years, subject to overall limit of Rs. 1.5 lakh per year.
* When you **surrender** the policy in the 4th year:

* The surrender amount is generally **exempt under Section 10(10D)**, provided:

* The annual premium does **not exceed 10% of the sum assured** for policies issued on or after 1 April 2012.
* If this condition is met, the entire surrender value is tax-free.
* If the premium condition is violated, the surrender proceeds are **taxable as income** (under “Income from other sources”).

#### Q2: Pay only 1st year premium and surrender in the 4th year

* You claimed deduction under 80C for only the first year’s premium (Rs. 50,000).
* When you surrender in the 4th year:

* Same rule applies: if the annual premium is less than or equal to 10% of sum assured, surrender proceeds are exempt under 10(10D).
* If not, surrender proceeds are taxable.
* However, since you did not continue paying premiums, your deduction under 80C was only for one year.
* No further 80C deduction available for subsequent years.

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### Important Points about Section 10(10D):

* Maturity or surrender proceeds are exempt from tax if the premium paid in any year is less than or equal to 10% of sum assured.
* If premiums exceed 10%, the entire maturity/surrender amount is taxable.
* Bonus amounts (if any) are also exempt under 10(10D).
* This applies only to policies issued **on or after 1 April 2012**. For policies before that date, exemption is generally available regardless of premium percentage.

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### Summary Table:

| Condition | 80C Deduction | Taxability of Surrender/Maturity Amount |
| --------------------------------------------------- | ------------------------------------------------- | ---------------------------------------------------------------- |
| Premiums paid for 3 years & surrendered in 4th year | Deduction for all 3 years (up to Rs. 1.5 lakh/yr) | Exempt under 10(10D) if premiums ≤ 10% sum assured; else taxable |
| Paid only 1 year premium & surrendered in 4th year | Deduction for 1 year only | Same rule as above for exemption or taxability |

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If you want, I can help you calculate the taxable amount or draft this explanation for your own reference. Let me know!

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