Budget 2021 proposed to limit exemptions on proceeds from unit-linked insurance plans that have so far allowed large investors to receive tax-free returns. The Narendra Modi government proposed to amend the clause in the Income Tax Act pertaining to taxation of proceeds from ULIPs, according to the Finance Bill, 2021. For ULIPs taken on or after Feb. 1, the maturity proceeds of policies with an annual premium of more than Rs 2.5 lakh will be taxable on par with equity-linked mutual fund schemes. Individuals holding multiple ULIPs with an aggregate premium in excess of Rs 2.5 lakh will have to pay tax on the proceeds. ULIPs combine life insurance and investments into equity and debt. In the event of the policyholder’s demise, either the sum assured or proceeds of the investments, whichever is higher, are paid out to the nominee. This amount paid to the nominee, the government said, will continue to be tax free. Under the existing provisions, all proceeds from ULIPs are tax free, irrespective of the amount of premium paid by the individual.

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