CBDT vide Notification No. 8/2022 dated 18th January 2022 in G.S.R. 24(E) through Income-tax (2nd Amendment) Rules, 2022 notified Rule 8AD in the Income-tax Rules, 1962 to compute capital gains on the maturity proceeds of ULIP policies which are not exempt from tax under section 10(10D) under section 45(1B) of the Income-tax Act, 1961.
Finance Act, 2021 has removed the tax exemption on the maturity of ULIP policies under section 10(10D). ULIP is specifically made taxable under the fourth and fifth proviso to section 10(10D). Such ULIPs are taxed under the head ‘capital gains’ but all ULIPs are not capital assets.
Section 2(14) defines that ULIPs to which exemption under section 10(10D) does not apply on account of the applicability of the fourth and fifth proviso is a capital asset.
Maturity or surrender proceeds from the redemption of a ULIP policy will be subject to capital gains tax only if it is covered by the fourth and fifth proviso to section 10(10D).
Section 45(1B) [introduced by the Finance Act, 2021] provides for the deemed taxation of profit and gains from the redemption of ULIP [to which exemption under clause (10D) of section 10 of the Act does not apply on account of the applicability of the fourth and fifth proviso] as capital gains. This sub-section also empowers CBDT to prescribe rules for the calculation of such capital gains from taxable ULIP policies.
In this context, the CBDT has notified Rule 8AD for the computation of income deemed as capital gains in such cases.
Read Also on Taxation of ULIPs
Capital Gains Tax on Maturity Proceeds of ULIP
Security Transaction Tax (STT) made applicable on ULIP: Budget 2021
Changes in Tax Exemption and Taxability on ULIP: Budget 2021
CBDT issues Guidelines on Taxability of ULIPs under Section 10(10D)
As per the notification, the capital gain on taxable ULIPs shall be computed by reducing the aggregate amount of premium so paid till the date of receipt of the proceeds under the ULIP, from the receipt of the amount of proceeds so received. In case, some part of capital gain is already offered to tax under the head capital gains, the amount of such capital gains shall also be reduced from the resultant capital gain.
Read the full text of Notification No. 8/2022 dated 18.01.2022 on Computation of Capital Gains on ULIP u/s 45(1B)
MINISTRY OF FINANCE
(Department of Revenue)
(CENTRAL BOARD OF DIRECT TAXES)
NOTIFICATION
New Delhi, the 18th January, 2022
G.S.R. 24(E).—In exercise of the powers conferred by sub-section (1B) of section 45, read with section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct taxes hereby makes the following rules further to amend the Income-tax Rules,1962, namely:─
1. Short title and commencement.—(1) These rules may be called the Income tax (2nd Amendment) Rules, 2022.
(2) They shall come into force from the date of their publication in the Official Gazette.
2. In the Income-tax Rules, 1962, after rule 8AC, the following rule shall be inserted, namely:—“8AD Computation of capital gains for the purposes of sub-section (1B) of section 45-(1) Where any person receives at any time during any previous year any amount under a specified unit linked insurance policy, including the amount allocated by way of bonus on such policy, then, —
(i) where the amount is received for the first time under the specified unit linked insurance policy during the previous year, the capital gains arising from receipt of such amount by such person during the previous year in which such amount is received shall be calculated in accordance with the formula:−
A-B
where, -
A= the amount received for the first time under a specified unit linked insurance policy during the previous year, including the amount allocated by way of bonus on such policy; and
B = the aggregate of the premium paid during the term of the specified unit linked insurance policy till the date of receipt of the amount as referred to in „A‟;
(ii) where the amount is received under the specified unit linked insurance policy during the previous year, at any time after the receipt of the amount as referred to in clause (i), the capital gains arising from receipt of such amount by such person during the previous year in which such amount is received shall be calculated in accordance to the formula,—
C-D
where, -
C= the amount received under a specified unit linked insurance policy during the previous year, at any time after the receipt of the amount as referred to in clause (i), including the amount allocated by way of bonus on such policy excluding the amount that has already been considered for calculation of taxable amount under this sub- rule during the earlier previous year or years; and
D = the aggregate of the premium paid during the term of the specified unit linked insurance policy till the date of receipt of the amount as referred to in „C‟ as reduced by the premium that has already been considered for calculation of taxable amount under this sub-rule during the earlier previous year or years.
(2) The capital gains as computed under clause (i) or clause (ii) of sub-rule (1) shall be deemed to be the capital gains arising from the transfer of a unit of an equity oriented fund set up under a scheme of an insurance company comprising unit linked insurance policies.
Explanation: For the purposes of this rule, the expression “specified unit linked insurance policy” shall mean any unit linked insurance policy referred to in sub-clause (c) of clause (14) of section 2 of the Act.”.
[Notification No. 8/2022/F. No. 370142/61/2021-TPL]
NEHA SAHAY, Under Secy.
Note : The principal rules were published in the Gazette of India, Extraordinary, Part-II, Section 3, Subsection (ii) vide notification number S.O. 969(E), dated the 26th March, 1962 and was last amended vide notification number G.S.R. 15(E), dated 14th January, 2022
Download CBDT Notification No. 8/2022 dated 18.01.2022 on Computation of Capital Gains on ULIP u/s 45(1B) in pdf format
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