ULIP tax treatment ambiguity cleared in Budget 2025

The Union Budget 2025 has introduced an important amendment when it comes to the taxation of Unit Linked Insurance Policies (ULIPs). This brings much-needed clarity since so far, the tax treatment of ULIPs was ambiguous. An example would be when premiums exceed certain thresholds.

The latest clarification classifies ULIPs as capital assets, with proceeds taxed under ‘capital gains’ instead of ‘income from other sources’ like earlier. Vibha Padalkar, MD and CEO of HDFC Life said, “Currently unit linked insurance plans (ULIPs) issued on or after Feb 1, 2021, with an aggregate annual premium above Rs. 2.5 lakh, which are not exempt under section 10(10D), are taxable as capital gains. We now welcome the clarity on the taxability of non-exempt ULIPs, issued before February 1, 2021, as capital gains, by rationalisation of relevant income tax provisions.”