The government has decided to levy a tax on ULIP investments over Rs 2.50 lakh

The Central Board of Direct Taxes (CBDT) has issued a notice that explains how to track ULIP charge exception status. It was planned in Budget 2021 to remove the expenditure exempt status on the pay of ULIPs if the annual premium exceeds Rs 2.5 lakh. Nonetheless, there were many questions about how the system would work, notably because of a few ULIPs, which included both pre-Budget recommendations and those secured afterward.

It’s worth noting that old ULIPs purchased before February 1, 2021 were considered entirely free of charge; nevertheless, this doesn’t mean you can’t buy new ULIPs with a premium of up to Rs 2.5 lakh and profit charge exemption. According to the most recent CBDT warning, both new and existing ULIPs’ absolute premiums would be assessed for exclusion, and if the sum is greater than Rs 2.5 lakh, this exemption will not be available for new ULIPs exceeding Rs 2.5 lakh.

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Calculation of the assessment for additional withdrawals

According to the letter, the policyholder’s incentives and withdrawals will be recognised as capital additions. In light of this, evaluation will be based on it. Because ULIPs are financial exchange-linked, withdrawals made before one year will result in a 15 percent transient capital increase tax. Withdrawal of speculation after one year will result in a ten percent increase in long-term capital accumulation.

Others took advantage of low-wage workers.

The government stated in its fiscal plan for 2021 that persons with major league incomes take use of the benefits available to small investors. The purpose of the charge exception on modest reserve funds is to assist small investors. In this vein, the government has decided to levy a penalty on ULIP interests over Rs 2.50 lakh in order to prevent major league paid workers from abusing the system.

PF regulations have also been altered.

The government has also decided to levy a fee on excess interest in the Provident Fund (PF) and Employees Provident Fund (EPF) (EPF). There is no organisation commitment in this, and assessment should be paid on ventures of more than Rs 2.50 lakh yearly in PF and Rs 2.50 lakh in EPF. Individuals with greater wages were allegedly abusing tax-free higher premiums, according to the government.

Keep an eye on your profit.

The government is keeping an eye on all speculation-related investments, including ULIPs. Since the previous year, the Personal Tax Department has been issuing Annual Information Statements (AIS). It details the intricacies of each of your ventures, as well as the income and expenses that are relevant in the future.