Gains from the sale of Ulip units are taxable

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 Might 2014 for 1 lakh ( 1.25 lakh sum assured). I surrendered the insurance policies on 9 January (i.e. after over 5 years) and obtained 2.25 lakh and 1.8 lakh, respectively (much less TDS at 3.75%). I had not claimed 80C profit within the yr of funding. I’m within the 30% tax slab. How is the profit quantity to be thought-about within the earnings tax problem for submitting return for evaluation yr 21-22? Will it’s added to my different earnings and taxed as per slab charges or is it a long-term capital achieve? What would be the tax fee and the price inflation index that must be thought-about to reach at internet profit achieve?

—Dilip Shah

As per Part 10(10D) of the Earnings Tax Act, 1961 (the I-T Act), the sum obtained 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.

Additional, the sum obtained 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.

For the reason that 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 obtained by you upon give up of the coverage in 2021 shall be taxable in your palms with out Part 10(10D) exemption.

Taxability of earnings from unit linked insurance coverage plan (Ulip), which doesn’t qualify for exemption below Part 10(10D) on account of extra premiums paid, just isn’t expressly specified within the regulation.

Nevertheless, it may arguably be taxed as capital achieve/loss in your palms as Ulip could also be thought-about as a capital asset as per normal ideas. Because the Ulip models have been held for greater than 36 months previous to the sale, the Ulip models will qualify as a long-term asset. The resultant achieve or loss arising out of sale of such Ulip models could be taxable as LTCG or LTCL (long-term capital loss) in your palms. The LTCG or LTCL from give up of Ulip must be computed because the distinction between internet 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 yr of acquisition x CII of yr 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. Additional, any tax deducted at supply might be claimed as a deduction from the ultimate tax legal responsibility.

Additionally, a rollover exemption might be sought by you in opposition to the above referred LTCG below Part 54F of the Act by buying or establishing a residential home property in India, topic to the prescribed circumstances and timelines.

Parizad Sirwalla is accomplice and head, world mobility providers, tax, KPMG in India.

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