Aditya Bhattacharya of King Stubb & Kasiva Explains Tax Treatment of ULIP Withdrawals After the Lock-in Period

As taxpayers prepare to file their Income Tax Returns (ITRs), Aditya Bhattacharya has clarified the tax implications of withdrawals from Unit Linked Insurance Plans (ULIPs), particularly where the annual premium exceeds the threshold prescribed under the Income-tax Act. Commenting on the tax treatment of ULIP maturity proceeds, Aditya explained that the withdrawal of the exemption under Section 10(10D) does not automatically render the entire maturity amount taxable. 

“Once your ULIP’s annual premium crosses ₹2.5 lakh, the loss of Section 10(10D) exemption isn’t the end of the story—it triggers a specific tax treatment, not a blanket ‘fully taxable’ outcome,” he said. 

Section 10(10D) of the Income-tax Act provides tax exemption for amounts received under eligible life insurance policies, including maturity proceeds, bonuses and death benefits, subject to the prescribed conditions. However, ULIPs that do not qualify for this exemption are taxed under a separate framework introduced by the Finance Act, 2021. 

Explaining the tax treatment further, Aditya noted that where a ULIP is redeemed after completing the mandatory five-year lock-in period, the tax liability is determined based on the gains earned rather than the total proceeds received. “Because you are withdrawing after the five-year lock-in, your holding period is well past one year, so the gains qualify as long-term capital gains. It’s not the entire maturity amount that’s taxed; only the gain portion above the prescribed threshold, and at this concessional rate rather than your income slab rate,” he explained. 

Aditya further emphasised that the tax treatment of ULIP proceeds ultimately depends on whether the policy qualifies for exemption under the Income-tax Act. Eligible ULIPs continue to enjoy tax-exempt status, while policies that do not satisfy the statutory conditions must be appropriately reported under the applicable head of income. 

His comments reinforce the importance of understanding the applicable tax provisions before reporting ULIP withdrawals in an ITR. Taxpayers should carefully review the policy’s premium amount, date of issuance and eligibility under Section 10(10D) to ensure accurate reporting and avoid unnecessary tax disputes or compliance issues. 

Read full article: https://www.moneycontrol.com/news/business/personal-finance/how-to-report-withdrawal-of-ulip-after-the-lock-in-period-in-your-itr-tax-rules-explained-13990542.html 

Last Updated on 7 August, 2026