The Union Budget 2025 brings a notable change for Unit-Linked Insurance Plans (ULIPs). If you have ULIPs with annual premiums over Rs 2.5 lakh, they will now be taxed like equity-oriented mutual funds. This means any gains from these ULIPs will be subject to capital gains tax.
Previously, ULIPs with premiums below Rs 2.5 lakh had tax exemptions under Section 10(10D) of the Income Tax Act. The new rule clarifies that ULIPs exceeding Rs 2.5 lakh are now considered capital assets. If you hold them for less than a year, profits will be taxed at your income tax slab rate. If held for over a year, gains will be taxed at a concessional rate of 12.5%.
This change aims to clear up the confusion around ULIP taxation and bring them in line with equity mutual funds. While this may make ULIPs less appealing to some policyholders, it could also drive demand for these products, benefiting insurance companies.
