I am in receipt of a ULIP payout (purchased in 2014), on which TDS u/s 194DA was deducted on payout net of premiums paid. I understand that I am not eligible for the exemption u/s 10 (10D), because the yearly premium was above 10 per cent of the sum insured.

What is the sum chargeable to income tax? Is it net amount as considered for TDS or the entire payout?

Hari Chidambaram SM

We understand that the individual is receiving a payout from a Unit-Linked Insurance Policy (ULIP) where the investment was made in 2014. We further understand that the yearly premium paid was greater than 10 per cent of the sum insured. Also, taxes have been deducted under section 194DA of the Income-tax Act, 1961 (‘the Act’) on payout net of premiums paid. We assume that the individual in question is a tax resident in India and his income is higher than the minimum threshold of taxable income under the Act.

We also assume that the individual would have shared details of his India tax ID with the Insurance policy provider and hence taxes under section 194DA have been deducted at 5 per cent on the amount paid (net of premium).

Further, as per section 10(10D) of the Act, any amount received from an insurance policy where the premium in any year exceeds 10 per cent of the actual capital sum assured would not be exempt from tax. As per the Act, income from ULIPs is taxed as capital gains under section 45. We will also assume that it is an equity-linked ULIP and it would be classified as a long-term capital asset, given the period of holding would exceed 12 months. Hence the amount subject to capital gains tax would be the payment received inclusive of any bonus less the insurance premiums paid. The said income would be taxed at 10 per cent exclusive of applicable surcharge if any and cess. The taxes deducted under section 194DA of the Act could be offset from the said tax liability.

Related Topics