CBDT Guidelines on Income Tax Exemption for ULIP Receipts u/s 10(10D)

CBDT clarifies that any sum received including by way of bonus during the current previous year under any one or more eligible Unit Linked Insurance Policy (ULIPs) issued on or after 01/02/2021 shall be exempt u/s 10(10D) of the Income Tax Act, 1961, if the annual premium during the policy term didn’t exceed Rs. 250,000, vide Circular 2/2022 dt. 19/01/2022. In other words, receipts from ULIPs, on maturity/ withdrawal including towards bonus, shall be subject to capital gains tax in the case of policies with annual premium above Rs. 250,000.

CBDT Income Tax Circular 2/2022 dt. 19/01/2022: CBDT Guidelines on Income Tax Exemption for ULIP Receipts u/s 10(10D)

1. Clause (10D) of section 10 of the Income-tax Act, 1961 (the Act) provides for income-tax exemption on the sum received under a life insurance policy, including any sum allocated by way of bonus on such policy subject to certain exclusions.

2. The Finance Act, 2021 amended clause (10D) of section 10 of the Act by inserting fourth to seventh provisos. Fourth proviso provides that, with effect from 01/02/2021, the sum received under a Unit Linked Insurance Policy (ULIP), issued on or after 01/02/2021, shall not be exempt under the said clause if the amount of premium payable for any of the previous years during the term of such policy exceeds Rs 2,50,000. Further, fifth proviso provides that if premium is payable for more than one ULIP, issued on or after 01/02/2021, the exemption under the said clause shall be available only with respect to such policies where the aggregate premium does not exceed Rs 2,50,000 for any of the previous years during the term of any of those policies. Sixth proviso provides that the fourth and fifth provisos shall not apply in case of sum received on death of the person.

3. Seventh proviso to the said clause (10D) also empowers the Central Board of Direct Taxes (Board) to issue guidelines, with the previous approval of the Central Government, in order to remove any difficulty which arises while giving effect to the provisions of the said clause. In exercise of the powers under this proviso, Board, with the previous approval of the Central Government, hereby issues the following guidelines.

4. Sum received including any sum allocated by way of bonus (hereinafter referred as “consideration”) during the previous year (hereinafter referred as “current previous year”) under any one or more ULIPs issued on or after 01/02/2021 (hereinafter referred as “eligible ULIP”) shall be exempt under clause (10D) of section 10 of the Act, subject to the satisfaction of other provisions of said clause. The same are explained by way of examples of different situations:- (contd… please refer above attachment)

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  1. Raman Gandotra

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