Tax treatment on ULIPs | Value Research You will not get any tax benefit if you surrender your ULIP before maturity. Any deductions claimed earlier will get reversed
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Tax treatment on ULIPs

You will not get any tax benefit if you surrender your ULIP before maturity. Any deductions claimed earlier will get reversed

Please advise on the income-tax treatment of unit-linked pension plans and unit-linked insurance plans at the following stages:

  1. Surrender before maturity
    1. Before three or five years
    2. After three or five years
  2. On death
  3. On maturity

- Jatin Koradia

Here is the tax treatment of ULIPs.

Surrender before maturity: You will not get any tax benefit. If you surrender before lock-in period ends, any deductions claimed earlier will get reversed and you will have to pay tax. As per the new section 194DA of IT Act (effective from 1st October 2014), if policy proceeds for a year exceed ₹. 1 lakh, then tax will be deducted at source as under:
At 2% (for valid PAN registered)
At 20% (for valid PAN not registered)

Death Benefit: It is tax free under Section 10(10D) of Income Tax Act.

Maturity Benefit: If the premium paid is more than 10 percent of sum assured, the maturity benefit will be added to insured's income. Insurance company will also deduct tax from such policies as per newly inserted section mentioned below. Remaining tax has to be paid by insured at time of filing ITR.

As per the new section 194DA of IT Act (effective from 1st October 2014), if premium paid is more than 10 percent of sum assured and policy proceeds for a year exceeds ₹. 1 lakh, then the tax deductions by insurer will be as under:
At 2% (for valid Pan registered)
At 20% (for valid PAN not registered)

Income Tax treatment of ULPPs
Surrender Benefit:
If you surrender your pension plan before maturity, the entire surrender value will be added to your annual income and taxed as per your tax slab.

Death benefit: It is tax free under section 10(10D) of Income Tax Act.

At time of vesting: Policyholder can withdraw 1/3rd of the corpus tax free under Section 10(10D) of IT Act and rest is paid as annuity which is treated as income and taxed accordingly.


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