Taxability on Surrender of a ULIP
In ULIPs, the investment risk in the investment portfolio is borne by the policyholder (U)
The Linked Insurance Products do not offer any liquidity during the first five years of the contract. The policyholder will not be able to surrender or withdraw the monies invested in Linked Insurance Products completely or partially till the end of the fifth year.
A unit linked investment plan (ULIP) is one of the popular investment choices as it offers the dual benefits of wealth creation along with the protection and security of loved ones. With systematic and regular investments, your money grows steadily which can help achieve long-term goals like buying your own house, your child’s education, retirement planning and more. It is essential to know the tax* benefits of the investment too. This will allow you to reap all its benefits.
Here is how your investment in a ULIP is taxed.
For ULIPs purchased after April 1, 2012
If you purchase a ULIP after April 1, 2012, you can claim a deduction under section 123 (Read with Schedule XV)* of the Income Tax Act, 2025 provided the premium paid towards your plan is not more than 10% of the total sum assured. The amount on maturity is also tax-exempt subject to conditions under Section 11 (Read with Schedule II to VII)*.
However, if the premiums paid are more than 10% of the total sum assured of the plan, the deduction is applicable only up to 10% of the total sum assured. In this case, the amount received at maturity is also taxable.
For ULIPs purchased before April 1, 2012
If you purchased a ULIP before April 1, 2012, you can claim a tax deduction under Section 123 (Read with Schedule XV)* of the Income Tax Act, 2025 provided the premium paid towards your plan is not more than 20% of the total sum assured. The amount on maturity is also tax-exempt under Section 11 (Read with Schedule II to VII)*. in this case.
However, if the premiums paid is more than 20% of the sum assured, you can claim a tax deduction on the amount equivalent to 20% of the sum assured only. Under these circumstances, the amount received at maturity is also taxable.
At maturity
As stated above, the amount received at maturity of your ULIP is exempt from tax if conditions mentioned in Section 11 (Read with Schedule II to VII)* of the Income Tax Act, 2025 are fulfiled.
