Is the surrender value of ULIP taxable?


Is the surrender value of ULIP taxable?


Tax rules in case of surrender of Unit Linked Insurance Plans (ULIPs)

ULIPs are investment policies that allow you to park money in different avenues ranging from equities, debt to money market instruments. It is a long-term plan where you are allowed to claim the premium paid as a deduction under Section 80C of the Income Tax Act. The proceeds received under a life insurance policy including ULIP are exempt for tax under section 10(10D) of the IT Act provided that the premium payable in respect of such policy does not exceed 10 per cent of the actual sum assured for any year during the policy term for policies issued after April 01, 2012.

If the policy is surrendered before 5 years, then the entire surrender value will be treated as income for the current financial year and will be added to gross total income. It will be taxed as per the applicable tax slab rate of the individual

If the policy is surrendered after the lock-in period of 5 years, then the surrender value will be exempt from taxation and assured can avail the tax benefit.

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