What is Section 10(10D) and ULIP tax exemption?

Section 10(10D) provides tax exemption on maturity or surrender proceeds of life insurance policies (including ULIPs) if the annual premium does not exceed ₹2.5 lakh. If premium exceeds ₹2.5 lakh, the entire amount becomes taxable as capital gains.

What is the ₹2.5 lakh premium limit for ULIP?

The ₹2.5 lakh limit refers to the total annual premium paid into the ULIP policy. If your annual premium is ₹2.5 lakh or less, ULIP proceeds are fully tax-exempt. If premium exceeds ₹2.5 lakh, all gains become taxable as short-term or long-term capital gains.

How is holding period calculated for ULIP tax purposes?

Holding period is calculated from the date of policy issuance to the date of maturity or surrender. If held for less than 1 year, gains are short-term capital gains (STCG) taxed at normal rates. If held for 1 year or more, gains are long-term capital gains (LTCG) taxed at 20% plus cess.

What happens when ULIP premium exceeds ₹2.5 lakh annually?

If your annual ULIP premium exceeds ₹2.5 lakh, Section 10(10D) exemption does not apply. All maturity or surrender proceeds become taxable as capital gains. STCG is taxed at normal rates (5-30%) while LTCG is taxed at 20% plus 4% cess.

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ULIP Capital Gains Tax Calculator for ₹2.5 Lakh Premium Limit (FY 2025

About This Calculator & Content

This calculator and content are based on Income Tax Act, 1961 and CBDT Guidelines for FY 2025–26. All tax rules, rates, and thresholds are accurate as per current Indian income tax law.

Last Updated: January 29, 2025 | Verified for: FY 2025–26 (AY 2026–27)

⚠️ Not Professional Advice: This is an estimation tool only. For personalized tax advice, consult a qualified Chartered Accountant (CA) registered with ICAI before filing your Income Tax Return.

What is a ULIP and How is it Taxed?

A ULIP (Unit Linked Insurance Plan) is a financial product that combines insurance protection with investment growth. When you invest in a ULIP, your premium is split between insurance coverage and a professionally managed investment portfolio (stocks, bonds, or a mix of both). At maturity or when you surrender the policy, you receive the accumulated fund value. The tax treatment of this maturity amount depends on several factors, including when the policy was issued and how much premium you paid annually. For policies issued before February 1, 2021, most ULIP maturity proceeds enjoy tax exemption under Section 10(10D) of the Income Tax Act. However, if your policy was issued on or after February 1, 2021, a new rule applies: if your annual premium exceeds ₹2.5 lakh in any year, the gains become taxable as capital gains. This is where calculating your tax liability becomes essential for accurate financial planning.

Section 10(10D) and ULIP Tax Exemption

Section 10(10D) of the Income Tax Act provides a special tax-exempt status for certain ULIP proceeds. This section states that if you meet specific conditions, the amount received from a ULIP on maturity or surrender is not counted as income and therefore not taxed.

The main conditions are:

•The policy must be life insurance, and a ULIP qualifies as it combines insurance with investment
•For policies issued on or after February 1, 2021, the aggregate annual premium (across all your ULIPs) must not exceed ₹2.5 lakh in any financial year
•Typically held for at least 5 years for stable returns (though tax exemption depends on premium amounts, not duration)
•Death benefits are always exempt from tax, regardless of premium amount

This exemption is incredibly valuable for investors because it means your entire maturity proceeds (including investment gains) can be received tax-free. However, this benefit is lost if you exceed the ₹2.5 lakh annual premium threshold for policies issued after February 1, 2021.

₹2.5 Lakh Premium Threshold Explained

The ₹2.5 lakh premium tax threshold is a critical rule introduced on February 1, 2021, by the Indian government. This threshold applies only to ULIPs issued on or after this date.

Here's how it works:

•If the aggregate annual premium you pay across all ULIPs in a financial year is ₹2.5 lakh or less, the maturity proceeds remain tax-free under Section 10(10D)
•If your annual premium exceeds ₹2.5 lakh in any year, the entire gain (maturity proceeds minus premiums paid) becomes taxable as capital gain
•The threshold is an aggregate limit — if you have two ULIPs and pay ₹1.5 lakh in one and ₹2 lakh in another, totaling ₹3.5 lakh, you exceed the limit

This ₹2.5 lakh premium tax threshold has changed the landscape of ULIP taxation. Previously, most investors enjoyed automatic exemption. Now, high-premium ULIP investors need to be aware of potential tax liability. The tax on high-value ULIP policies is straightforward: your capital gain is calculated and taxed at either 12.5% (if held over 12 months) or 20% (if held 12 months or less), plus 4% Health & Education Cess.

Using our calculator helps you determine exactly where you stand and plan your investments wisely.

When ULIP Gains Become Taxable

When ULIP gains become taxable is a crucial question for high-premium ULIP investors. As mentioned, once your annual premium exceeds ₹2.5 lakh for policies issued after February 1, 2021, your maturity proceeds are no longer exempt and capital gains tax applies.

Capital gains = Maturity Proceeds − Total Premiums Paid

This gain is then taxed based on the holding period:

•
Long-Term Capital Gain (LTCG):
If held for more than 12 months, taxed at 12.5% + 4% Cess = 13% effective rate
•
Short-Term Capital Gain (STCG):
If held for 12 months or less, taxed at 20% + 4% Cess = 20.8% effective rate

For example, if you paid ₹3 lakh annually for a ULIP, received ₹12 lakh at maturity after holding for 15 months (LTCG), and paid ₹24 lakh total in premiums:

Capital Gain = ₹12 lakh − ₹24 lakh = -₹12 lakh (no gain, treated as zero)

But if maturity proceeds are ₹35 lakh:

Capital Gain = ₹35 lakh − ₹24 lakh = ₹11 lakh
Tax = ₹11 lakh × 12.5% = ₹1.375 lakh + Cess = ₹1.43 lakh
Net Proceeds = ₹35 lakh − ₹1.43 lakh = ₹33.57 lakh

Understanding ULIP capital gains tax rules India helps you make informed decisions about policy amounts and investment timing.

How the ULIP Capital Gains Tax Calculator Works

This tax calculator simplifies the complex ULIP tax calculation process into a user-friendly tool. Here's how it works:

Step 1: Enter Your Policy Details

•
Policy Issue Date:
Determines if the ₹2.5 lakh rule applies (only for policies issued on/after Feb 1, 2021)
•
Annual Premium Paid:
Your total premium in a single financial year, aggregated across all ULIPs
•
Total Premiums Paid Till Date:
The cumulative amount you've invested since policy inception

Step 2: Enter Maturity/Surrender Information

•
Proceeds Received:
The amount you actually received at maturity or surrender
•
Encashment Date:
The date you received the proceeds (determines holding period for LTCG vs STCG)
•
Death Benefit Flag:
Whether this is a death claim (always exempt from tax)

Step 3: Get Instant Results

This calculator instantly shows you:

•Your exemption status (Exempt or Taxable)
•If taxable: Capital gain amount, tax rate, tax before cess, cess amount, and total tax payable
•Net proceeds after tax (what you actually keep)
•Detailed breakdown of how the calculation was done

The calculator works entirely in your browser — your financial data is never stored or sent to any server, ensuring complete privacy.

Step-by-Step ULIP Tax Calculation

When your ULIP premium exceeds ₹2.5 lakh, here's the exact step-by-step process to calculate your tax:

Step 1: Determine Your Exemption Status

→Is this a death benefit? → Tax-free (₹0 tax)
→Was the policy issued before Feb 1, 2021? → Likely exempt (₹0 tax)
→Is annual premium ≤ ₹2.5 lakh? → Tax-free (₹0 tax)
→Annual premium > ₹2.5 lakh? → Continue to Step 2

Step 2: Calculate Your Capital Gain

Capital Gain = Maturity Proceeds − Total Premiums Paid

(If this is negative, treat it as zero — no negative gains)

Step 3: Determine Your Holding Period

Holding Period = Number of months between issue date and encashment date

Step 4: Apply the Correct Tax Rate

→If holding period > 12 months → Use 12.5% LTCG rate
→If holding period ≤ 12 months → Use 20% STCG rate

Step 5: Calculate Tax Before Cess

Tax Before Cess = Capital Gain × Tax Rate

Step 6: Calculate Health & Education Cess

Cess = Tax Before Cess × 4%

Step 7: Calculate Total Tax

Total Tax = Tax Before Cess + Cess

Step 8: Calculate Net Proceeds After Tax

Net Proceeds = Maturity Proceeds − Total Tax

This process is automated in the ULIP maturity tax calculation tool, but understanding each step helps you verify your results.

Practical Examples

Example 1: Premium ≤ ₹2.5 Lakh (Tax-Free)

Policy issued: March 2022

Annual premium: ₹2 lakh

Total premiums paid: ₹10 lakh (5 years × ₹2L)

Maturity proceeds: ₹15 lakh (date: March 2027, 60 months holding)

Is death benefit? No

Result: EXEMPT

Reason: Annual premium (₹2 lakh) ≤ ₹2.5 lakh threshold

Tax payable: ₹0

Net amount received: ₹15 lakh

This is why the ULIP capital gains tax calculator for 2.5 lakh limit emphasizes the importance of staying within the premium limit for tax-free treatment.

Example 2: Premium > ₹2.5 Lakh (Taxable as Capital Gain)

Policy issued: January 2023

Annual premium: ₹3.5 lakh

Total premiums paid: ₹7 lakh (2 years × ₹3.5L)

Maturity proceeds: ₹12 lakh (date: January 2025, 24 months holding)

Is death benefit? No

Calculation:

1. Exemption check: Annual premium (₹3.5L) > ₹2.5L → TAXABLE

2. Capital Gain = ₹12L − ₹7L = ₹5 lakh

3. Holding period = 24 months (> 12 months) → LTCG

4. Tax rate = 12.5% (LTCG)

5. Tax before cess = ₹5L × 12.5% = ₹62,500

6. Cess = ₹62,500 × 4% = ₹2,500

7. Total tax = ₹62,500 + ₹2,500 = ₹65,000

8. Net proceeds = ₹12L − ₹65,000 = ₹11.35 lakh

This example demonstrates how capital gains tax reduces your actual take-home amount when premiums exceed ₹2.5 lakh.

Example 3: Death Benefit (Always Exempt)

Policy issued: May 2021

Annual premium: ₹4 lakh

Total premiums paid: ₹8 lakh (2 years)

Death proceeds received: ₹20 lakh

Is death benefit? YES

Result: EXEMPT (Death Benefit)

Reason: Death benefits are always tax-free under Section 10(10D), regardless of premium amount

Tax payable: ₹0

Net amount received: ₹20 lakh

This exemplifies how ULIP capital gains tax rules India prioritize family protection — death claims are never taxed.

Common Mistakes Investors Make

⚠Confusing Premium with Proceeds: Many investors think exceeding ₹2.5 lakh in proceeds triggers tax. Actually, it's the annual premium that determines tax status. You can have a ₹3 lakh annual premium and receive ₹50 lakh proceeds — if LTCG applies, you pay 12.5% tax on the gain (₹50L minus total premiums paid), not on the entire ₹50 lakh.
⚠Ignoring the Annual Limit: The ₹2.5 lakh limit is annual. If you paid ₹3 lakh in Year 1 and ₹2 lakh in Year 2, your exemption is lost entirely if the policy was issued after Feb 1, 2021. Even one year above the limit triggers taxability.
⚠Forgetting to Aggregate Multiple ULIPs: If you have two ULIPs (issued after Feb 1, 2021) with ₹1.5 lakh and ₹1.2 lakh annual premiums, totaling ₹2.7 lakh, you exceed the threshold. The limit applies to aggregate premiums across all ULIPs, not individual policies.
⚠Misunderstanding the Holding Period: The holding period is measured from issue date to encashment date, not from purchase of units. A policy issued on March 15, 2023, and encashed on March 10, 2025, is held for 23 months (just under 24) — if it's 23 months, it's STCG at 20% plus Cess, not LTCG.
⚠Not Accounting for Cess: Many calculations show tax as 12.5% or 20% but forget the 4% Health & Education Cess, which makes effective rates 13% (LTCG) and 20.8% (STCG). This 0.8% difference adds up significantly on large gains.

Final Summary

Understanding ULIP taxation is essential for smart financial planning in India. The key takeaway is simple: if your ULIP was issued before February 1, 2021, or if issued after and your annual premium stays at or below ₹2.5 lakh, you enjoy tax-free maturity proceeds. If your premium exceeds ₹2.5 lakh, your gains become subject to capital gains tax.

This helps you plan your investments, understand your financial obligations, and make informed decisions about your insurance and investment strategy. Remember, while this calculator provides accurate estimates, always consult a qualified Chartered Accountant before filing your tax return for personalized, professional tax advice.

Important Disclaimer: This content is based on current Income Tax Act provisions for FY 2025-26. Tax laws are subject to change. This is NOT professional tax advice. Always verify with official CBDT guidelines and consult a professional Chartered Accountant for your specific situation before making financial or tax-filing decisions.

To estimate your exact tax liability, the calculator shows you:

✓Whether your proceeds are tax-exempt or taxable
✓The exact capital gain amount
✓Tax rate applicable (LTCG or STCG)
✓Total tax payable
✓Net proceeds after tax

This helps you plan investments and make informed decisions. Always consult a qualified Chartered Accountant before filing your tax return.

Disclaimer: Based on FY 2025-26 rules. Consult a professional tax advisor for your specific situation.

FAQs on ULIP Taxation

Is ULIP maturity always tax-free?+

Not anymore. ULIPs issued before February 1, 2021 are generally tax-free at maturity under Section 10(10D). However, ULIPs issued on or after February 1, 2021 are tax-free only if your annual premium doesn't exceed ₹2.5 lakh. If your premium exceeds this limit in any year, the maturity proceeds are taxed as capital gains. Death benefits remain tax-free regardless of premium or issue date.

Does the ₹2.5 lakh rule apply to all ULIPs?+

The ₹2.5 lakh premium limit applies only to ULIPs issued on or after February 1, 2021. If your ULIP was issued before this date, it's generally exempt from tax at maturity, subject to standard Section 10(10D) conditions. Always check your policy document to confirm the exact issue date and premium amounts.

Are death benefits from ULIPs taxable?+

No. Death benefits from ULIPs are always tax-free under Section 10(10D), regardless of when the policy was issued or how much annual premium was paid. This is a key advantage of ULIP insurance — the death benefit amount goes to your family without any tax deduction.

How is capital gains tax calculated on ULIP gains?+

Capital gain equals Maturity Proceeds minus Total Premiums Paid. If the policy was held for more than 12 months, it's taxed as LTCG at 12.5% plus 4% Cess equals 13% effective rate. If held for 12 months or less, it's STCG at 20% plus 4% Cess equals 20.8% effective rate. This calculator automates these calculations instantly.

Do multiple ULIP policies combine for the ₹2.5 lakh limit?+

Yes, absolutely. The ₹2.5 lakh annual premium limit is aggregate across all your ULIPs issued on or after February 1, 2021. If you have three ULIPs with annual premiums of ₹1 lakh each (totaling ₹3 lakh), you exceed the ₹2.5 lakh threshold, and all maturity proceeds become taxable. This is why aggregating premium amounts is critical.

How does the holding period affect ULIP capital gains tax?+

Holding period is counted from the policy issue date to the encashment date. If held for more than 12 months, your gain is taxed as Long-Term Capital Gain (LTCG) at 12.5% plus Cess. If held for 12 months or less, it's Short-Term Capital Gain (STCG) at 20% plus Cess. Even a few months difference affects your final tax liability significantly.

⚠️ Important DISCLAIMER & Legal Information

This is NOT Professional Tax Advice

This calculator and content are estimation tools for planning purposes only. They do NOT constitute professional tax advice. Always consult a qualified Chartered Accountant (CA) registered with ICAI before filing your Income Tax Return (ITR). Tax liability varies based on individual circumstances and recent law changes.

Content Accuracy & Basis

✓ Based on Income Tax Act, 1961: All rules follow official Indian tax laws for Section 10(10D) and capital gains (FY 2025-26)
✓ CBDT Compliant: Adheres to Central Board of Direct Taxes (CBDT) guidelines and notifications
✓ Current as of Jan 29, 2025: Incorporates ₹2.5 lakh premium rule (effective Feb 1, 2021) and latest tax rates

Limitations & When To Seek Professional Help

⚠ Estimation tool only: Not a final tax assessment or compliance document
⚠ Standard scenarios: Covers typical ULIP cases only. Complex situations (special exemptions, policy amendments, multiple holdings) need CA consultation
⚠ Tax laws change annually: Rules for FY 2026-27 onwards may differ. Verify before each financial year
⚠ No guarantee: Results depend on accurate input data. Incorrect figures will produce incorrect tax estimates

Before Filing Your ITR

→ Verify all details: Match calculator results with your actual ULIP policy statements and maturity letters
→ Confirm premium amounts: Ensure annual and total premiums are accurate across all your policies
→ Cross-check holding periods: Verify issue and encashment dates from official policy documents
→ Consult a CA: Before reporting ULIP proceeds in your ITR-2, get professional verification
→ Keep records: Maintain policy documents, maturity letters, and premium receipts for 5 years

Tax laws are subject to change. This content is based on FY 2025-26 rules. Always verify with official CBDT sources and consult a professional tax advisor for your specific situation.