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Taxation of redemption of ULIP after lock-in-period of 5 years

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A P

25 Points Posted on 04 August 2024

I have purchased some Ulip policies in August 2019 with premium paying term of 5 years and policy period varying from 10 years to 15 years. If I redeem the ULIP after lock-in-period of 5 years, ie. BEFORE the end of policy period, then

1) is the capital gains in the redemption value taxable

2) if it is taxable as LTCG, will indexation apply?

regards

Abhik Pal

Replies (4)

Quick Summary

This discussion clarifies the taxation of Unit Linked Insurance Plans (ULIPs) redeemed after the initial 5-year lock-in period but before the policy term ends. It addresses whether capital gains are taxable and if indexation benefits apply. The consensus is that ULIPs issued before 1st February 2021 may be subject to long-term capital gains tax upon redemption after 5 years, as Section 10(10D) exemption might not apply in such scenarios.

Abhishek Arthur

50 Points Posted on 04 August 2024

ULIP issued on or after 01/02/2021 are considered for capital gain taxation. In other cases check the applicability of 10(10D) exemption

A P

25 Points Posted on 05 August 2024

Thanks Mr Abhishek. My ULIPS are purchased before 01/02/2021 and in the new regime I understand Section 10D is not applicable. So in my case will LTCG be imposed if I sell it after 5 years but before policy term?

Abhishek Arthur

50 Points Posted on 05 August 2024

Section 10D exemption is not withdrawn for new tax regime, from April 2023 where policies issued after this date where premium exceeds 5 lacs are taxable other than ULIPs, in other cases if the conditions are met it is exempt

Aashok Kumar Sharma

Finance/Compliance Consultant

73860 Points Posted on 07 November 2026

Likely exempt for ULIPs bought in 2019:

• Sec 10(10D): sums received under a ULIP (including maturity or surrender after lock-in) are exempt if the premium in any year doesn't exceed 10% of the sum assured.

• The Rs 2.5 lakh annual premium limit (Finance Act 2021) applies only to ULIPs issued on or after 1 February 2021. Policies from August 2019 are unaffected.

• 80C reversal: since you paid premiums for 5 years (the full premium term) before surrender or withdrawal, 80C(5) doesn't reverse earlier deductions.

• If the 10% condition isn't met (sum assured too low), the gain (redemption minus premiums) is taxable under Other Sources. TDS under 194DA applies.