ULIP Surrender Value-Taxable?

POSTED BY Sud ON July 14, 2012 4:09 pm COMMENTS (6)

I have been mis-sold two ULIP Policies-SBI LIFE UNIT PLUS II. One policy started on 8 Feb 2008 and Other on 14 July 2008. Have paid their premium for 3.5 years totaling 1,05,000 for each policy. So totalling 2,10,000 was paid for these ULIPs. Surrended these policies in Feburary 2012. Got 2,00,844 as surrender value. Claimed Income Tax Rebate of 60000 in Year 2 & 3. Nothing Claimed as tax rebate in this financial year for 30000 deposited.

I have following query. These links didnt clear my queries-

http://localhost/jagoforum2/tax-implications-on-ulip-surrender/2271/
http://localhost/jagoforum2/tax-on-surrender-value-ulip/3869/

Is the surrender amount taxable? If yes, whole of it or do I need to add the amount claimed as IT Rebate in Year 2 & 3 in 2,00,844 i.e. 3,20,844? Im stressed a lot due to this.

Can anybody help clear my doubts especially Manish? Need to file ITR soon.

6 replies on this article “ULIP Surrender Value-Taxable?”

  1. Adithya V.R ds says:

    hi ,

    instead of opening a new thread i am posting my query here itself because it is relevant . My mother had invested Rs 10 lkhs in SBI Life – Unit Plus II Equity Optimizer Pension Fund in 2008 . Recently I have surrendered and got 10,77,000 as returns . My question is due I have to pay tax for the interest

  2. Sud says:

    Are you pretty sure? Because in some post, it stated that I have to pay tax on surrender value,. and in some, no surrender value tax if surrendered after 5 years.

    Im pretty confused.

    1. mayur25 says:

      Hello Sud,

      The game rule is

      The minimum period for premium to be paid for ULIP Policies are 3 years.

      The surrender Charges after 5 years are “NIL”.

      Pay premiums at choice, is an age old agents’ strategy, which is nothing less than a bold lie. Once, you stop paying the premium of your policy, you will face discontinuance charges that are levied in accordance with the year of your last paid premium. According to the latest IRDA rulings, following are the charges that are levied to you in case you stop paying premium before 5 years.

      Discontinuance during policy year Discontinuance charges
      1
      Lower of 6%(Annual premium or fund value) but not exceeding Rs 6000
      2
      Lower of 4%(Annual premium or fund value) but not exceeding Rs 5000
      3
      Lower of 3%(Annual premium or fund value) but not exceeding Rs 4000
      4
      Lower of 2%(Annual premium or fund value) but not exceeding Rs 2000
      5+
      Nil

      Hope this helps to clarify your confusion.

      1. Dear Mayur, the question is for taxation of surrender value not the application of surrender charges.

        Thanks

        Ashal

    2. Dear Sud, for 3 or more year holding period in ULIP, the surrender is non taxable. For endowment plans, the holding period should be 5Y.

      In case of pension plan, no matter it’s ULPP or Traditional, the surrender is taxable at any stage of the policy.

      Thanks

      Ashal

  3. Dear Sud, here is the answer. As the policy in question was a ULIP, the minimum 3Y period of holding ‘ll make it eligible for tax free surrender. So for you it’s tax free. Regarding the tax rebate claim u/s 80C, if you had claim any rebate in FY 2011-2012, the FY of surrender, you w’d have to pay that saved tax.

    Thanks

    Ashal

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