The Central Board of Direct taxes (CBDT) has notified new rule over calculation of capital gain regarding unit-linked insurance policies (ULIPs).
Accordingly, capital gains on ULIPs with annual premium of more than Rs 2.5 lakh, will be calculated on payments received by the policy holder, including withdrawals and bonus.
As per the new rules, the difference between the proceeds from the scheme and the total premium paid will be considered as capital gains in the first instance and, subsequently, the gap between the incremental proceeds and premium paid will be used for computing capital gains.
Long-term gains of above Rs 1 lakh will be taxable at 10%, while short-term gains on the high-premium ULIPs will be taxed at a flat rate of 15%.
Further, a new income tax rule, 8AD, has also been introduced for computing capital gains on redemption of ULIP units purchased after 1st February 2021, but not exempted under Section 10(10D) of the Income Tax Act.
New rules also notified on the liability of collection of securities transaction tax on such policies at the time of sale and reporting requirements. However, denial of tax benefits for large investments in ULIPs is not applicable in case of the death of the insured.