The Union Finance Minister Nirmala Sitharaman while presenting Budget 2021 has announced certain tax measures on investments of high net-worth individuals in different ways. Now, the capital gains tax will be charged on the maturity amount from unit-linked insurance plans (Ulips) with an annual premium above Rs 2.5 lakh. Even, interest earned on Employees’ Provident Fund (EPF), Voluntary Provident Fund (VPF) or exempted PF trusts, where the annual employee contribution is above Rs 2.5 lakh, is now taxable.
The Union Budget has also proposed that there will be no tax exemption on the maturity proceeds of Ulips with an annual premium above Rs 2.5 lakh. This has mainly been done to bring the taxation of Ulips equal to that of equity-oriented mutual funds. As per the information, the rule will be applied on Ulips issued on or after February 1, 2021. However, it has been decided to keep the claim received from such Ulips on the death of the policyholder tax-exempt.
Budget announcement
Sitharaman, while presenting the Union Budget 2021, said that there is no cap on the amount of annual premium being paid by any person during the term of the policy under the existing provisions of the IncomeTax Act. She further said that several instances have been noticed where high net worth individuals are claiming exemption under this clause by investing in Ulips with a huge premium. Allowing such exemptions is defeating the legislative intent of this clause.
It has been said that the maturity proceeds up to Rs 1 lakh will be exempt but any returns over that will be taxed at 10 per cent. Securities transactions tax is also likely to be applicable on redemptions from Ulips.
According to the Budget, employees with high salary who are contributing large amounts to EPF, VPF or exempted PF trusts will now no longer be able to enjoy tax-free interest on their contributions. The contribution by employee and employer under the EPF act is fixed at 12 percent of the salary, but if the employees wants to contribute more, he/she can voluntarily contribute more to VPF.
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