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Is ulip policy a "property" for income tax purpose.

Kamalakar Agashe (Chief Engineer Turbine) (92 Points)

18 September 2016

I have surrendered an insurance policy and TDS is going to be deducted since it is not covered under sec 10(D).

There is an opinion that the entire proceeds are to be considered as "income from other sources" but I consider it as Capital Gain and my case is as follows:

Capital Asset is defined to include:

a) Any kind of property held by an assessee, whether or not connected with business or profession of the assessee.

property is not defined in the Income Tax Act so we have to use meaning from other sources.

For me the Insurance Policy is my property.

I am putting this on debate on this forum to prove or disprove that it is "property"

If it is "Property" I can claim cost of acquisition (premium) as deduction and indexation since it is more than 5 years.

Kamalakar

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2 Replies

CA Sridhar.K (Chartered Accountant ) (51 Points)
Replied 01 November 2016

The above case can be resolved as stated below:

Legal Background:

The words used in Section 10 sub-section 10D begins with "any Sum" so it has to be interpreted with inclusively all sums received, the clause (c) of the above said section reads as under:

"(c) any sum received under an insurance policy issued on or after the 1st day of April, 2003 but on or before the 31st day of March, 2012 in respect of which the premium payable for any of the years during the term of the policy exceeds twenty per cent of the actual capital sum assured"

Hence, all sums received under an insurance policy (sum assured+bonus+any other sum) will be exempt only if following conditions are satisfied:

(i) Insurance policies should be issued during 1st April, 2003 to 31st March, 2012. (Answering the query if this is satisfied, since, it is not mentioned clearly)

(ii) Actual Insurance premium "payable" for any of the years during the policy should not exceed 20% of the Sum assured.

Facts of the Case:

As per the details provided it is a unit linked insurance policy:

Since, the premium payable every year is more than 10% policy is not exempt under Section 10(10D) and it is completely taxable.

Section 194DA

Contains deduction of 2%(till 31st May, 2016) of the insurance sum received under a policy if the said sum received is not exempt U/s 10(1D).

Kindly refer the below link what the CEO ofmyinsuranceclub.com have to say about unit linked insurance plan.

https://www.sify.com/finance/quick-facts-about-section-10-10-d-of-the-income-tax-act-news-income-tax-obvkMPcgafbsi.H T M L

Keeping the actual scenario of the insurance apart, there is second way of treating the same for tax, that is a more clever route to put it across differently:

The units what is given by the insurance Company find place in Section 2(h) clause (ib) of Securities Contracts Regulation Act, 1956 and it can be interpreted to include the units as security which is a Capital Asset within the definition of Section 2(14) of the Income Tax Act, 1961.

Hence, the same can be considered as capital asset and gains should be considered as a long-term capital gain or short-term capital gain based on period of holding, it should be decided whether each unit was held for more than 36 months or less than 36 months respectively.

Accordingly premium paid will go as cost of acquisition.