ULIP Tax — Section 10(10D), Maturity & Post-2021 Premium Rules

Last updated: 3 June 2026

ULIP (Unit Linked Insurance Plan) maturity proceeds are exempt under Section 10(10D) if the annual premium does not exceed 10% of the Sum Assured. Post February 1, 2021, ULIPs with aggregate annual premium exceeding ₹2.5 lakh are taxed like equity mutual funds — LTCG at 12.5% above ₹1.25L. The death benefit is always fully tax-free, regardless of premium amount.

Budget 2021 Change: For ULIPs purchased on or after 1 February 2021, if aggregate annual premium across all such ULIPs exceeds ₹2.5 lakh, the maturity amount is no longer exempt under Section 10(10D) and is taxed as capital gains (equity MF framework: LTCG 12.5% above ₹1.25L).

10(10D)

Section 10(10D) is the core ULIP tax exemption. For maturity to be tax-free: premium ≤10% of Sum Assured AND (for post-Feb 2021 ULIPs) aggregate annual premium across all ULIPs ≤₹2.5 lakh. Death claim is always exempt — no conditions, no limits.

Section 10(10D) — Conditions for Tax-Free Maturity

Section 10(10D) of the Income-tax Act exempts any sum received under a life insurance policy — including ULIP maturity — subject to the following conditions:

Condition 1 — Premium-to-SA ratio: For policies issued on or after April 1, 2012, the annual premium must not exceed 10% of the Sum Assured (SA). If premium is ₹1 lakh/year, the SA must be at least ₹10 lakh for the exemption to apply. For policies issued before April 1, 2012, the older limit of 20% of SA applies. If the premium exceeds 10% of SA, the entire maturity amount becomes taxable (not just the excess).

Condition 2 (added from 1 February 2021): The aggregate annual premium across all ULIPs purchased on or after February 1, 2021 must not exceed ₹2.5 lakh. If you have multiple ULIPs and the combined annual premium exceeds ₹2.5 lakh, the maturity from those ULIPs (proportionately for the excess) is taxable.

Death benefit: The death benefit payable to the nominee on the life assured's death is always fully exempt under Section 10(10D) — there is no premium-to-SA ratio condition and no ₹2.5 lakh threshold for death claims. This remains unchanged.

Pre-2021 vs Post-2021 ULIP: Tax Comparison

Parameter	ULIP Purchased Before 1 Feb 2021	ULIP Purchased On/After 1 Feb 2021
Maturity — exempt?	Exempt if premium ≤10% of SA	Exempt only if premium ≤10% of SA AND aggregate ULIP premium ≤₹2.5L/yr
Premium >10% of SA	Maturity taxable at slab rate	Maturity taxable as capital gains (equity MF framework)
Aggregate premium >₹2.5L/yr	Not applicable (no such rule)	Excess portion taxable as LTCG (12.5% above ₹1.25L)
Death benefit	Always fully exempt	Always fully exempt
80C on premium	Yes, up to ₹1.5L (old regime only)	Yes, up to ₹1.5L (old regime only)

Taxable ULIP — How Capital Gains Are Computed (Post Feb 2021, Premium >₹2.5L)

When a ULIP (purchased on or after February 1, 2021) with aggregate annual premium exceeding ₹2.5 lakh matures or is surrendered, the capital gains framework for equity-oriented mutual funds applies:

LTCG (held >12 months): Since virtually all ULIPs have a policy term of 5+ years, the gains at maturity are Long-Term Capital Gains. Tax rate: 12.5% on gains exceeding ₹1.25 lakh in the financial year (the ₹1.25 lakh exemption is the combined limit across all equity MF LTCG and equity shares).

Cost of acquisition: The premiums paid (net of charges allocated to mortality/insurance cover) are considered the cost of acquisition for the purpose of computing capital gains.

TDS: The insurance company is required to deduct TDS on taxable ULIP maturity proceeds at the applicable rate before paying out the maturity amount.

80C Deduction on ULIP Premiums

ULIP premiums qualify for deduction under Section 80C of the Income-tax Act, subject to:

(a) Annual premium must not exceed 10% of the Sum Assured (for policies after April 1, 2012). If premium exceeds 10% of SA, only the portion equal to 10% of SA is eligible for 80C. (b) Overall 80C limit of ₹1.5 lakh per year applies (combined with PPF, ELSS, LIC, home loan principal, etc.). (c) Under the new tax regime, Section 80C deductions are not available — including ULIP premiums.

If you bought a high-premium ULIP (post Feb 2021, >₹2.5L/yr) primarily for tax benefits, note that (a) the 80C deduction is limited and shared with other investments, and (b) the maturity proceeds will now be taxable as capital gains. The tax efficiency of such ULIPs is significantly reduced compared to pre-2021.

GST on ULIP Charges

Various charges levied on your ULIP attract 18% GST under the Goods and Services Tax framework:

ULIP Charge	GST Rate	Impact
Fund Management Charge (FMC)	18% GST	Deducted from NAV / fund value daily
Mortality / Risk Cover Charge	18% GST	Deducted monthly from fund value
Policy Administration Charge	18% GST	Deducted monthly from fund value
Premium Allocation Charge	18% GST	Upfront deduction before unit allocation
Surrender / Discontinuance Charge	18% GST	Charged on early surrender

The 18% GST on life insurance premiums and ULIP charges has been widely discussed for reduction. As of FY 2025-26, no change has been implemented. The GST effectively reduces the investible corpus in your ULIP. You cannot claim an income tax deduction for the GST component of ULIP charges.

ULIP Surrender Before Maturity

Surrender during lock-in (first 5 years): ULIP has a mandatory 5-year lock-in period. Surrendering within the first 5 years means your fund value moves to a "discontinued policy fund" earning only 4% interest, with surrender charges deducted. The amount is paid out only after the 5-year lock-in. The amount paid from the discontinued fund is taxable as income in the year of receipt if the policy does not qualify for Section 10(10D) exemption.

Surrender after 5 years: If the ULIP satisfies the Section 10(10D) conditions (premium ≤10% SA, aggregate premium ≤₹2.5L for post-Feb 2021 ULIPs), surrender proceeds are tax-free. If the ₹2.5L threshold is breached, capital gains tax applies.

Frequently Asked Questions

Is ULIP maturity amount taxable under the new rules?

It depends on when your ULIP was purchased and the annual premium amount. For ULIPs purchased before February 1, 2021: maturity proceeds are fully exempt under Section 10(10D) provided the annual premium does not exceed 10% of the Sum Assured. For ULIPs purchased on or after February 1, 2021: if the aggregate annual premium across all ULIPs exceeds ₹2.5 lakh, the maturity proceeds are taxable. If aggregate premium ≤₹2.5 lakh, maturity proceeds remain exempt under Section 10(10D). The excess is taxed like equity MF capital gains — LTCG at 12.5% above ₹1.25L if held over 12 months (for ULIPs treated as equity-oriented), or at slab rate.

Is the death benefit from a ULIP taxable in the hands of the nominee?

No. The death benefit paid by a ULIP to the nominee or legal heir on the death of the life assured is always fully exempt from income tax under Section 10(10D), without any condition or monetary limit. This exemption applies regardless of the premium amount, sum assured, or whether the ULIP was purchased before or after February 1, 2021. The 2021 amendment to Section 10(10D) applies only to maturity proceeds — it does not affect the death benefit exemption.

Is the premium paid on a ULIP eligible for Section 80C deduction?

Yes, ULIP premiums qualify for Section 80C deduction subject to conditions: (1) The annual premium must not exceed 10% of the Sum Assured (for policies issued after April 1, 2012). For older policies (before April 1, 2012), the limit is 20% of Sum Assured. If premium exceeds this limit, only the portion equal to 10% of SA qualifies for 80C. (2) The overall 80C deduction limit is ₹1.5 lakh per year (combined with other 80C investments like PPF, ELSS, LIC premiums, home loan principal, etc.). (3) Under the new tax regime, Section 80C deductions are not available.

How are ULIP charges like fund management charges and mortality charges taxed?

ULIP charges are not directly taxed in your hands as income. However, these charges — fund management charges (FMC), policy administration charges, mortality charges, and premium allocation charges — are subject to 18% GST charged by the insurance company. The GST is effectively deducted from your fund value or collected separately. You cannot claim an income tax deduction for ULIP charges paid. The 18% GST on life insurance premiums (including ULIP premiums) has been a subject of debate, with proposals for reduction, but as of FY 2025-26, the 18% GST rate on ULIP-related charges remains in effect.

If my ULIP premium exceeds ₹2.5 lakh, how exactly is the maturity taxed?

If your aggregate annual ULIP premium (across all ULIPs purchased on or after February 1, 2021) exceeds ₹2.5 lakh, the maturity proceeds are taxable as capital gains. The taxation follows the equity mutual fund framework: the ULIP is treated as an equity-oriented fund. If the ULIP policy term exceeds 12 months (which virtually all ULIPs do), the gains are Long-Term Capital Gains (LTCG) taxed at 12.5% on gains above ₹1.25 lakh per year. The insurance company will deduct TDS at applicable rates on taxable ULIP maturity proceeds. You must report the capital gains in your ITR under Schedule CG.

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