Taxation of Equity oriented ULIPs

Taxation of Equity oriented ULIPs

Hello,

I purchased an ULIP in Jan 2014.

Premium - 3,50,000/-
Sum Assured - 24,00,000/-
Premium paying term - 5 years
Policy term - 50 years

Surrendered in September 2024

How will my gains from this ULIP be taxed?
Slab rate or LTCG?
The funds of the ulip were equity oriented with > 65% in equity.

Asked 1 day ago in Income Tax

Tax Treatment: Tax-Free Under Section 10(10D)

Your ULIP surrender proceeds are completely exempt from tax for the following reasons:

1. Pre-2021 Policy Advantage

Since your ULIP was purchased in January 2014, it falls under the old tax regime for ULIPs issued before February 1, 2021. These policies are exempt from the ₹2.5 lakh annual premium cap introduced in Budget 2021.

2. Long-term Holding Period

You held the policy for over 10 years, which significantly exceeds the minimum 5-year lock-in period required for ULIPs. This long-term holding strengthens your eligibility for tax exemption.

Important Clarifications

No Capital Gains Tax Application

Unlike ULIPs purchased after February 1, 2021, your policy will not be treated as a capital asset subject to Long-Term Capital Gains (LTCG) tax.

No Slab Rate Taxation

Since you surrendered after the 5-year lock-in period and the policy qualifies under Section 10(10D), the surrender value will not be added to your taxable income and taxed at slab rates.

Shubham Goyal

CA, Delhi

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Talk to Shubham Goyal

I think you overlooked that my annual policy premium was more than 10% of the sum assured ... in such a scenario I think it is not exempt under 10(10D).

But as per 2025 budget proposal I think a clarification was provided that proceeds from ULIPs will be taxed like LTCG when 10(10D) is not applicable. Now is this for policies bought after 2021 or does it apply to older policies.
As per a article in HDFC Life it is supposed to be taxed as LTCG at 12.5%. I saw a video on youtube by a CA who mentioned that it should be taxed as LTCG.

CA Ranjeet Kunwars video --- https://www.youtube.com/watch?v=6RZiMKt98I0

HDFC Life article - https://www.hdfclife.com/ulip-plans/ulip-taxation#:~:text=The%20Union%20Budget%202025%20has,%E2%80%9CIncome%20from%20capital%20gain%E2%80%9D.

Kindly clarify on this issue.

Asked 19 hours ago

You’re right to flag the 10% test — with ₹3.5 L premium on a ₹24 L sum assured, your premium is ~14.6%, so the Section 10(10D) exemption doesn’t apply for this 2014 ULIP.

Since your annual premium (₹3.5 L) > 10% of sum assured (₹24 L), Section 10(10D) exemption does not apply.

Your ULIP was issued in Jan 2014 and surrendered in Sep 2024 → falls under old law (before Budget 2025 changes).

Therefore, the surrender proceeds are taxable as “Income from Other Sources” at your slab rate (on the income component = proceeds − total premiums). TDS u/s 194DA @5% would be deducted.

Budget 2025 clarified that from 1 Apr 2025 (AY 2026-27 onwards), all taxable ULIPs (old or new) will be taxed as capital gains (equity-oriented ULIPs → LTCG @12.5% after ₹1.25 L exemption).

For your Sept 2024 surrender → Slab rate under IFOS.
For any future surrender after 1 Apr 2025 → LTCG rules apply.

Shubham Goyal

CA, Delhi

503 Answers

15 Consultations

Talk to Shubham Goyal

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