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You have been advising persons to withdraw from old ULIP funds as they give very poor returns. I am also a sucker in the same category having invested substantial funds in one of the ICICI Prudential Insurance ULIP schemes in August 2009. The return so far is below savings bank interest rate. I am planning to withdraw from the fund next month. I will like to know from you what are the tax liabilities on such premature withdrawals? Does one have to pay service tax on the surrender charges? What about income tax? Will it be treated as debt fund withdrawal and am I required to pay long term capital gains?
- Vikram Kumar
In case of Unit Linked plans, if you surrender your policy before completion of five policy years, surrender value will be added to your income and taxed as per applicable slab rate. Apart from this, the deduction claimed under Section 80C during previous years will be reversed and you will have to pay tax on it as well. However if you surrender after payment of five year premiums, there will be no tax on the surrender value.
This article was originally published on September 11, 2014.
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