CBDT has notified the Income tax (2nd Amendment) Rules, 2022 to insert new IT Rule 8AD on ‘Computation of Capital Gains from ULIPs u/s 45(1B)‘, in respect of insurance policy receipts on maturity/ withdrawal including towards bonus, which are subject to capital gains tax where annual premium exceeded Rs. 250,000, vide Notification 8/2022 dt. 18/01/2022.
CBDT Income Tax Notification 8/2022 dt. 18/01/2022: New IT Rule 8AD on Computation of Capital Gains u/s 45(1B)
Of late Government has reviewed the scenario and has concluded that promoting investments and insurance sector at substantial cost to exchequer seems to achieve nothing but to make unjust enrichment in the case of a few taxpayers, by way of huge savings in their tax liabilities. Accordingly, in Finance Act, 2021, Government has made provisions to restrict the income tax exemption in respect of policies with annual premium above Rs. 250,000, to rationalise the situation, so that taxpayers can only take tax benefit instead of making tax gains, out of such incentive schemes for investments/ insurance sector.
[Text of New IT Rule] 8AD: Computation of capital gains for the purposes of sub-section (1B) of section 45
(1) Where any person receives at any time during any previous year any amount under a specified unit linked insurance policy, including the amount allocated by way of bonus on such policy, then,-
(i) where the amount is received for the first time under the specified unit linked insurance policy during the previous year, the capital gains arising from receipt of such amount by such person during the previous year in which such amount is received shall be calculated in accordance with the formula-
A-B
where,-
A= the amount received for the first time under a specified unit linked insurance policy during the previous year, including the amount allocated by way of bonus on such policy; and
B = the aggregate of the premium paid during the term of the specified unit linked insurance policy till the date of receipt of the amount as referred to in “A‟;
(ii) where the amount is received under the specified unit linked insurance policy during the previous year, at any time after the receipt of the amount as referred to in clause (i), the capital gains arising from receipt of such amount by such person during the previous year in which such amount is received shall be calculated in accordance to the formula,-
C-D
where, –
C= the amount received under a specified unit linked insurance policy during the previous year, at any time after the receipt of the amount as referred to in clause (i), including the amount allocated by way of bonus on such policy excluding the amount that has already been considered for calculation of taxable amount under this sub-rule during the earlier previous year or years; and
D = the aggregate of the premium paid during the term of the specified unit linked insurance policy till the date of receipt of the amount as referred to in “C‟ as reduced by the premium that has already been considered for calculation of taxable amount under this sub-rule during the earlier previous year or years.
(2) The capital gains as computed under clause (i) or clause (ii) of sub-rule (1) shall be deemed to be the capital gains arising from the transfer of a unit of an equity oriented fund set up under a scheme of an insurance company comprising unit linked insurance policies.
Explanation: For the purposes of this rule, the expression “specified unit linked insurance policy” shall mean any unit linked insurance policy referred to in sub-clause (c) of clause (14) of section 2 of the Act.
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CBDT Income Tax Notification 9/2022 dt. 18/01/2022: Securities Transaction Tax (1st Amendment), Rules, 2022
As per the new provisions, the ULIP Premium paid is considered cost of acquisition for arriving at the amount of Capital Asset from the receipts under ULIP. However, it is still not clear whether indexation benefit is available in respect of the premium paid from year to year under ULIP? If not, then why?
1. Indexation benefit will be there or not?
2. What if Premium Paid is less than 2.5 lakhs per Annam under each policy and Aggregate Premium is more than 2. 5 Lakhs. Per Annam?
3. What if ULIP Bonus Reversed? Will Assessee get refund of tax already paid for the bonus accrued?
1)Indexation benefit is not available as the capital gains computed shall be deemed to be the capital gains arising from the transfer of a unit of Equity oriented fund and taxable according to sec 112A.
2)If the aggregate premium of all ULIPS exceeds 250000, then exemption can be claimed for those policies as per your choice.