ULIP Surrender Value to be shown under Capital Gains or Income from Other Sources

A investor purchased a ULIP on 29/12/2018 with a yearly premium amount for Rs. 1 lakh, premium paying term - 5 years, Sum Assured - 7 lakhs.

The investor made 2 yearly premium contributions for Rs. 1 lakh each and stopped making premium payments.

After the lock-in period of 5 years, on 29/12/2023 the investor surrendered and foreclosed the policy.

He received 3.25 lakhs overall so the gain / income was 1.25 lakhs (3.25 lakhs - 2.00 lakhs premium) on 29/12/2023 from an equity oriented ULIP.

My understanding is as follows:

1) As the premium is more than 10% of the sum assured therefore 1.25 lakhs is taxable and not exempt under 10(10D)

2) As it is an equity oriented ULIP and the holding period is more than 5 years - the gains for 1.25 lakhs is to be shown under Long Term Capital Gains, Equity - 112A

3) Therefore the taxation is to be on 0.25 lakhs @ 10% - 2500+ Cess (Upto 1 lakh - no tax)

However as there are other opinions on the web:

A) "No tax liability on ULIP investment made before 01/02/2022 - Can be shown under 10(10D)"

B) "Income from ULIP is to be shown under 'Income from other Sources'."

Kindly guide if my understanding is correct or the procedure to be followed for ULIP surrender value taxation.

 

Replies (1)

When surrendering a Unit Linked Insurance Plan (ULIP), the surrender value is considered a gain and is taxable. Here's how to show it in your tax return: - _Capital Gains_: If the ULIP was held for more than 12 months, the surrender value is considered a Long-Term Capital Gain (LTCG). Show it under: - Schedule CG (Capital Gains) - LTCG from ULIP surrender - _Income from Other Sources_: If the ULIP was held for 12 months or less, the surrender value is considered a Short-Term Capital Gain (STCG) and is taxed as Income from Other Sources. Show it under: - Schedule OS (Income from Other Sources) - "Other income" or "Miscellaneous income" Remember to calculate the gain by subtracting the total premiums paid (excluding any rider premiums) from the surrender value. Please consult a tax advisor or chartered accountant to ensure accurate reporting, as tax laws and regulations may change.

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