- Wealth PMS (50L+)
Your ULIPs – Unit Linked Insurance Plans – had a huge advantage over mutual funds or any other form of investments, in that they were tax free on exit. You could invest whatever you wanted and you would not get taxed on the gains, due to a favourable tax policy.
Not any more.
In Budget 2021, new ULIPs launched after Feb 1, 2021 will not allow such a tax exemption for people who invest a lot in them. That means if your annual premium was Rs. 2.5 lakh or more, across all the ULIPs you have invested in, then you don’t get the tax benefit on exit.
How much tax? 10% of profits, as capital gains.
(No indexation of inflation is allowed, at this time)
Lots of rules, of course:
It will, to some extent, as the likes of ICICI issue a lot of ULIPs (more than 50% of their premium income is ULIPs) And then most of their premium also comes from people who pay more than 1.25 lakh per year as premium. They stand to lose considerable. Others such as LIC have more well spread out policyholders.
This will now bring mutual funds on par with ULIPs as long term investment vehicles. It’s positive for mutual funds in that respect.
If you were planning to take a ULIP, this might be one more reason to stay away from an opaque complex product – the lack of a tax benefit too.