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Will I pay capital tax on my matured ULIP?

T S Khurana

T S Khurana   |186 Answers  |Ask -

Tax Expert - Answered on Aug 10, 2024

A certified management accountant since 1993, T S Khurana is a fellow member of The Institute of Cost Accountants of India. His areas of expertise are income tax, specifically litigation cases, and GST.

Since the last 21 years, he has also been providing expert advice on financial matters, including investments and diversification of funds, and wealth building in the long term to his clients.
He believes that investment in real estate is the safest way for better returns and wealth generation over a period of time.

A former chairman of the Chandigarh Chapter of Institute of Cost Accountants of India, T S Khurana has also served as member of its technical committee.... more
Asked by Anonymous - Aug 02, 2024Hindi
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Sir, I had taken ulip in 2009 for 10 years and paid total premium 123000/- and it was matured in 2019, but I have not withdrawn, now in 2024 it is showing amount around 5 lacs what will be the capital tax if I sold this in 2024 for 5 lacs.

Ans: To be specific
To get clear reply & tax calculation, I suggest you to please furnish the details : ULIP Policy & Company, Period of Premium paid in years & Annual Premium amount.
Thanks.
DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.
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Ramalingam

Ramalingam Kalirajan  |7026 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Jul 16, 2024

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Hi sir , I had taken a ULIP pension plan 2 from HDFC in 2009 with monthly sip of 4000. It's value now is 21 lakh will I have to pay income tax on the total amount and will the amount be added to my salary for tax liability. Please guide me
Ans: ULIP pension plans are a mix of investment and insurance. You have invested in HDFC's ULIP pension plan since 2009 with a monthly SIP of Rs 4,000. Now, your plan's value is Rs 21 lakhs. It's crucial to understand how this affects your taxes.

Taxation on ULIPs
ULIPs have a specific tax treatment. The premiums paid for ULIPs are eligible for tax deduction under Section 80C. However, the tax treatment at the time of maturity or withdrawal is essential to understand.

Maturity Proceeds
The taxability of maturity proceeds from ULIPs depends on whether the premiums paid exceed 10% of the sum assured. If the premium paid does not exceed 10% of the sum assured, the maturity proceeds are tax-exempt under Section 10(10D). Let's evaluate this for your plan.

Evaluating Your ULIP
To determine the taxability, we need to check the sum assured of your ULIP. If the annual premium of Rs 48,000 (Rs 4,000 x 12) does not exceed 10% of the sum assured, your maturity proceeds will be tax-exempt.

Tax on Partial Withdrawals
Partial withdrawals from ULIPs are also tax-free if they meet the above conditions. However, if the conditions are not met, the proceeds will be taxed.

Adding to Salary for Tax Calculation
If the maturity proceeds are taxable, they will be added to your income for that financial year. This means it will increase your total taxable income, and you will have to pay tax according to your income tax slab.

Breaking Down the Tax Implications
Let's dive deeper into the tax implications.

Scenario 1: Maturity Proceeds are Tax-Exempt
If your ULIP's sum assured is such that the annual premium is less than 10% of the sum assured:

No Tax on Maturity: The entire Rs 21 lakhs will be tax-exempt.
Scenario 2: Maturity Proceeds are Taxable
If the premium exceeds 10% of the sum assured:

Taxable Amount: The Rs 21 lakhs will be added to your income for the year.
Tax Calculation: The amount will be taxed according to your income slab.
Understanding Your Current Financial Situation
You have diligently invested in a ULIP for over a decade. Your disciplined approach has resulted in a significant corpus. Now, you need to make informed decisions about your future investments and tax liabilities.

Future Investment Strategies
Diversify Your Portfolio
While ULIPs offer a mix of investment and insurance, it's essential to diversify. Consider investing in mutual funds, PPF, and other debt instruments.

Benefits of Mutual Funds
Higher Returns: Equity mutual funds generally offer higher returns compared to ULIPs.

Flexibility: You can switch between different funds and redeem your investments as per your needs.

Systematic Investment Plan (SIP): SIPs help in disciplined investing and rupee cost averaging.

Disadvantages of Index Funds
Index funds track a specific index. They have lower expense ratios but lack the potential to outperform the market. Actively managed funds, on the other hand, have fund managers making strategic decisions to outperform the market.

Regular Funds vs. Direct Funds
Direct Funds: These have lower expense ratios but require more active management and market knowledge from the investor.

Regular Funds: These come with the expertise of a Certified Financial Planner (CFP) and an advisor, providing guidance and regular reviews.

Investing Through a Certified Financial Planner (CFP)
A CFP can offer personalized advice, helping you choose the right mix of investments based on your goals and risk tolerance. They provide ongoing support and adjustments to your portfolio.

Creating a Balanced Portfolio
Your current investments in ULIPs have served you well. Now, it's time to create a balanced portfolio that includes:

Equity: For growth and higher returns.

Debt: For stability and regular income.

Fixed Income: For safety and guaranteed returns.

Tax Planning Strategies
Proper tax planning can help reduce your tax liability and increase your net returns. Here are some strategies to consider:

Maximize Section 80C: Continue to invest in tax-saving instruments like PPF, ELSS, and life insurance.

Use Section 80D: Take advantage of deductions for health insurance premiums.

Capital Gains Planning: Plan the sale of assets to minimize capital gains tax.

Health Insurance
Ensure you have comprehensive health insurance to protect your savings from medical emergencies. This also provides tax benefits under Section 80D.

Emergency Fund
Maintain an emergency fund to cover 6-12 months of expenses. This fund should be in liquid and safe investments.

Estate Planning
Consider estate planning to ensure your assets are distributed as per your wishes. This can include writing a will and setting up trusts.

Final Insights
Your journey with ULIP has been fruitful. However, diversifying your investments and planning your taxes effectively can enhance your financial security. By consulting a CFP and creating a balanced portfolio, you can achieve your financial goals and enjoy a comfortable retirement.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |7026 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Aug 13, 2024

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I have running ULIP Insurance policy bought in 2008. Premium 4 Lks. Assured sum 52 Lks and is still active. I shall very grateful to you if could clarify my below queries in "IT terms" 1. a. What is the tax implication, if a partial withdrawal if done now ? b. If no TDS is deducted, will the withdrawal amount be treated as an earning, or the purpose of tax filing? 2. a. As the ULIP policy was done in 2008, What will be the tax implication, in case of, surrender of the policy now? b. If no TDS is deducted on the surrender amount, will the surrender value be treated as an earning, for the purpose of tax filing.
Ans: Partial Withdrawal Tax Implications
Partial Withdrawal - Tax Implication Now:

Since your ULIP was bought before 2010, the partial withdrawal is tax-free if the premium does not exceed 10% of the sum assured (Rs 5.2 lakhs in your case).
No TDS Deducted - Treatment for Tax Filing:

If no TDS is deducted, the withdrawal is still tax-free and does not need to be treated as taxable income.
Surrender Tax Implications
Surrender of Policy - Tax Implication Now:

If you surrender the ULIP, the maturity proceeds are tax-free, as your policy was purchased in 2008, provided the premium does not exceed 10% of the sum assured.
No TDS Deducted on Surrender - Treatment for Tax Filing:

If no TDS is deducted, the surrender value is still tax-free and does not need to be reported as taxable income.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

..Read more

Ramalingam

Ramalingam Kalirajan  |7026 Answers  |Ask -

Mutual Funds, Financial Planning Expert - Answered on Sep 27, 2024

Asked by Anonymous - Sep 27, 2024Hindi
Money
I have invested 3L for 5 years (Total 15L) in ICICI Prulife Elite life 2 ULIP between 2016 to 2021. I didn’t know the difference between ULIP and SIP back then. As of today, fund value is about 31L. The policy term is 20years. Given taxation, Seeking advise on when to withdraw the fund and modes of withdrawal to minimize the tax. Im actually not in a need of funds now. When I decided to invest, my daughter had just born and intention was to save money for her higher education. But almighty had other plans and I became a Canadian in 2022. So she may not study in India
Ans: You have invested Rs 15 lakh over 5 years in a ULIP (Unit Linked Insurance Plan). The fund value has grown to Rs 31 lakh, which is a good return. Your intention was to save for your daughter's education, but now the situation has changed as you're living in Canada. You don’t require the funds immediately, and your daughter may not study in India. Let’s evaluate the best approach to managing this investment and how to minimize taxes on withdrawal.

It’s worth noting that ULIPs are a mix of investment and insurance. Your policy term is 20 years, and it’s crucial to decide when and how to withdraw the funds based on your financial goals and tax efficiency.

Withdrawal Timing and Strategy
Long-Term Growth Potential: Since the policy has a 20-year term, you have the flexibility to stay invested for more time. ULIPs tend to show better growth after the 10-year mark. If you are not in urgent need of funds, you could let the investment grow further.

Taxation on ULIPs: ULIPs have a tax benefit if the annual premium is less than Rs 2.5 lakh per year. Given that your investment was Rs 3 lakh per year, this might not apply to you. However, if the policy's sum assured is at least 10 times the annual premium, the maturity proceeds may still be exempt from tax under Section 10(10D).

Partial Withdrawals: ULIPs allow partial withdrawals after the lock-in period (which is typically 5 years). These withdrawals are tax-free up to a certain limit. This can help you gradually access your funds while spreading out the tax impact.

Exit Strategy: If you choose to exit the ULIP entirely, the proceeds will be subject to capital gains tax, depending on your policy’s sum assured and premium structure. Given that you're now a Canadian resident, taxation in Canada may also come into play. Consulting with a tax expert familiar with cross-border tax implications can help here.

Taxation for Indian Residents
Tax on ULIP Withdrawals: If your premium exceeds Rs 2.5 lakh in a year, the returns from ULIP are taxable. The capital gains tax on equity-oriented funds (which most ULIPs are) is 12.5% for long-term capital gains exceeding Rs 1.25 lakh. The gains you have earned might fall under this category.

Tax-Free Insurance: If the sum assured in your ULIP is 10 times or more than the annual premium, then the maturity proceeds can be tax-free under Section 10(10D). Check your policy to see if you meet this condition.

Lock-in Period: Since ULIPs have a 5-year lock-in, you’ve already crossed that threshold. There is no additional lock-in after this period, so you can make withdrawals anytime without penalties.

Impact of Canadian Residency on Taxation
Double Taxation: As a Canadian resident, you may be taxed on your worldwide income. Withdrawals from your ULIP in India might also be subject to Canadian taxes. To avoid double taxation, explore the tax treaty between India and Canada, which might offer relief. Speaking with a tax consultant familiar with both tax systems can be beneficial.

Timing of Withdrawals: Given the tax implications in both countries, it may be better to stagger withdrawals over several years. This can reduce the tax burden by spreading the gains across different financial years.

Fund Growth and Diversification
ULIP Fund Performance: The current value of Rs 31 lakh is a good indication that your ULIP has performed well. However, ULIPs typically come with higher charges compared to mutual funds. Over the next few years, the charges could eat into the returns, especially if the policy has high mortality charges.

Market Conditions: The market has been volatile recently, but equity-based ULIPs tend to perform well over the long term. You could consider switching your fund allocation within the ULIP to a more conservative fund (like a debt fund) if you prefer a safer approach now.

Switching Funds: ULIPs offer fund-switching options, allowing you to change the allocation between equity and debt funds. This flexibility can help you manage risk, especially as you near the point of withdrawal.

Should You Stay Invested or Exit?
Cost of Staying Invested: ULIPs have various charges, including fund management charges, policy administration fees, and mortality charges. As you progress further into the policy term, these charges may increase, especially if your insurance cover is high. Assess if the growth of the fund outweighs these costs.

Insurance Needs: If the insurance component of your ULIP is no longer relevant (since you are now living in Canada), you may consider surrendering the policy. ULIPs are not the most cost-effective way to get life insurance, and term insurance might be a better option if insurance is still a priority for you.

Surrendering the ULIP: If you decide that the charges and complexity of the ULIP outweigh the benefits, you can surrender the policy. The surrender proceeds will be taxable if your premiums exceed Rs 2.5 lakh annually, and if the sum assured is not at least 10 times the premium. The proceeds will be treated as long-term capital gains and taxed accordingly.

Modes of Withdrawal
Partial Withdrawals: As mentioned, partial withdrawals from ULIPs are tax-free up to a certain limit. You can withdraw part of your investment every year, reducing the overall tax impact. This also allows the remaining funds to grow.

Full Withdrawal: If you need the full amount, consider withdrawing in a year when your income is lower, which may reduce the tax liability.

Switch to Debt Fund: If you are looking for more stable growth, you can switch your ULIP allocation to debt funds. This reduces the volatility and risk, especially as you get closer to the time you may need the money.

Investment Alternatives for Future
Regular Mutual Funds: For future investments, consider regular mutual funds through a Certified Financial Planner. These offer more transparency, flexibility, and generally lower costs compared to ULIPs. Mutual funds also offer a wide range of options across different risk profiles.

Actively Managed Funds: While index funds are often popular, actively managed funds tend to outperform in specific markets. A Certified Financial Planner can help you select funds that suit your risk profile and long-term goals.

Child Education Planning: Since your daughter may study abroad, look into international education savings plans. This can help you invest in a way that aligns with future educational expenses in countries like Canada.

Finally
Your decision on when to withdraw from your ULIP depends on multiple factors: tax efficiency, fund performance, and your financial goals. As a Canadian resident, you must also consider the tax implications in both countries.

If you do not need the funds right now, staying invested for the long term could be beneficial. However, keep an eye on the charges and switch to a conservative fund if you prefer to reduce risk.

Exploring alternatives like mutual funds for future investments could be a more cost-effective strategy, especially with professional guidance. Your daughter’s education is a critical goal, and investing with that in mind is key.

Best Regards,

K. Ramalingam, MBA, CFP,
Chief Financial Planner,
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

..Read more

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Dr. Shyam, I had my teeth cleaned 6 months ago and after that was done I saw discoloration on certain teeth that wasn't there before. Years ago I had my teeth cleaned and one particular tooth after the cleaning was sensitive to touch. I had a crown put in from two different dental offices. The first one did the crown right, but was trying to charge me $3,500 more than the agreement they made with Medicare. Medicare corrected that. I other dentist did a crown and it didn't go all the way up to my gums and is sensitive to especially cold things. I'm not having very good experiences with dentist by and large. Can't find an honest one or one that can actually do the job right. I feel being on Medicare your a target to bring in money. Not sure what to do next. Supposed to go back and have them redo the crown that didn't go to my gums, but it also was ttd place to didn't clean my teeth right and discolored some of them. Any suggestions on how to trust there is actually an capable and honest dentist out there who can perform properly?
Ans: Identifying a capable and honest dentist is crucial for your oral health and well-being. Here are some tips to help you find one:

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Dating, Relationships Expert - Answered on Nov 14, 2024

Asked by Anonymous - Nov 03, 2024Hindi
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Hi, I am 30 years old not married & now my parents are forcing me to get married. I think i am good looking guy. It's not like i have never been with girls. I have had brief flings with multiple girls. And there was one girl whom i was in a platonic relationship with with lot of emotional sharing & have spent a lot of time with her. The same goes with another girl. Both of them have told me that i have been pretty cool & girls would like me to be their bf or husband. But i am not able to accept anyone because of the guilt that of my past that i never had a relationship. Never been able to tell anyone that i had a gf. I know this is wrong to compare my life but i can't stop thinking that way. Can you tell me what to do? Like a contsant regret of not having a very steamy cool fancy relationship from outside. I know relationships have it's own ups & downs. But this guilt is killing me that i missed out lot of things in life & if get married in an arranged marriage i would feel myself to be a looser who couldn't even find a girl on his own. Though i know all of these comparisons are wrong & i should be rational. I am not able to help it. Please help me out
Ans: Dear Anonymous,
Whatever you are feeling, it is very normal. More people than you could imagine go through this same phase. But as you mentioned, these are just thoughts; there is no truth to them. Not having a relationship does not make you uncool. It merely means that you did not meet your perfect match yet. I understand that you feel like you have missed out on something and that feeling is valid. It might not be reasonable, but it's very natural to think this way. I can suggest one thing- why don't you try a dating or matchmaking app to find your own partner? That way, you will be keeping your parents' wishes and won't let yourself down either. It will also give you more control over choosing your life partner.

Hope this helps.

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DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Investment in securities market are subject to market risks. Read all the related document carefully before investing. The securities quoted are for illustration only and are not recommendatory. Users are advised to pursue the information provided by the rediffGURU only as a source of information and as a point of reference and to rely on their own judgement when making a decision. RediffGURUS is an intermediary as per India's Information Technology Act.

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