Since the ULIP was issued before 1 Feb 2021, the old rules under Section 10(10D) apply. However:
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Because this is a pension ULIP (retirement plan) and not a life insurance policy (sum assured = 0), Section 10(10D) exemption does not apply.
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On surrender before maturity, the entire surrender value minus total premiums paid is taxable as “Income from Other Sources” in the year of surrender.
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The insurer will deduct TDS at 5% on the income portion (as per Section 194DA).
Example:
If total premiums paid = ₹10 lakh and surrender value = ₹14 lakh →
Taxable income = ₹4 lakh.
This ₹4 lakh is added to your wife’s income and taxed at her slab rate.
Tip:
If surrendered after maturity and proceeds are used to buy an annuity (as required), the lump sum can be tax-free (up to 60% commuted). Early surrender makes it fully taxable.
