ULIP will have the facility to switch from one fund to another! Taxes will be equal to equity mutual funds

ULIP is a unit linked insurance product where insurance and investment benefits come together.

ULIP is a unit linked insurance product where insurance and investment benefits come together.

The amended Finance Bill 2021 states that minimum premium holding requirements have been imposed on high premium ULIPs. At the same time, the Finance Bill 2021 said that ULIPs with a premium of more than 2.5 lakhs per annum will not get tax benefits on maturity as per the income tax law.

New Delhi. In Unit Linked Insurance Policies (ULIP), now there is a free facility to transfer funds from one fund to another (Free Switching among Funds). Even switching from Debt Fund to Equity Fund and Equity Fund to Debt Fund, there is no fee to be paid. After the Finance Bill Amendment, ULIPs will be taxed at par with equity mutual funds. In such a situation, the investors may not get the facility of free switching for long. If this happens, it will be clearly written in the terms of ULIP that the free switching facility has now been discontinued.

The Central Government has made 127 reforms in the Finance Bill (Amendment) 2021 passed in the Lok Sabha on 23 March. There are many provisions for ULIPs with higher premiums. The amended bill states that ULIPs with higher premiums have been implemented with minimum equity holding requirements. At the same time, the Finance Bill 2021 stated that ULIPs with premiums exceeding 2.5 lakhs per annum will not get the benefit of tax exemption available on maturity under Section 10 (10) (D) of the Income Tax Act, 1961. Now the amendment states that such ULIPs will be taxed at par with equity mutual funds.

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ULIP’s capital gains will be taxed at 10%The amended Finance Bill states that ULIPs with higher premiums must meet the minimum equity holding threshold equal to equity mutual funds when it comes to capital gains tax. This minimum threshold limit will have to be maintained throughout the term of the insurance policy. In the Budget 2021, it was said that those ULIPs were brought under tax, in which more than 2.5 lakh premiums will be paid annually. Capital gains on these will be taxed at the rate of 10%, equivalent to equity mutual funds. According to the amended Finance Bill, if such ULIPs invest directly in equity, then 65% of their assets should be in equity.

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Learn how to apply tax on ULIPs
The Finance Bill (Amended) 2021 states that if ULIPs do not invest directly in equity through exchange traded funds (ETFs), then 90% of their assets should be in equity. If they fail to maintain this criterion, then the returns received from them will be treated as capital gains from any other assets, ie 20% tax with indexation will be there if held for a long period. It was said in Budget 2021 that if you pay a premium of more than 2.5 lakh rupees in a year in ULIP, then the benefit of tax exemption available under section 10 (10) (d) will not be available. This rule will not apply to existing ULIPs. It will be effective only on policies sold after 1 February 2021.




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