Budget 2021- Taxation of proceeds of high premium unit linked insurance policy (ULIP)
Clause (10D) of section 10 of the Act provides for the exemption for the sum received under a life insurance policy, including the sum allocated by way of bonus on such policy in respect of which the premium payable for any of the years during the terms of the policy does not exceed ten percent of the actual capital sum assured.
Under the existing provisions of the Act, there is no cap on the amount of annual premium being paid by any person during the term of the policy. Instances have come to the notice where high net worth individuals are claiming exemption under this clause by investing in ULIP with huge premium. Allowing such exemption in policy/policies with huge premium defeats the legislative intent of this clause. The intention was to provide benefit to small and genuine cases of life insurance. Hence, it is proposed to provide for the followings:
(i) Insert Explanation 3 to the clause (10D) of section 10 of the Act to define ULIP as a life insurance policy which has components of both investment and insurance and is linked to a unit as defined in clause (ee) of regulation (3) of the Insurance Regulatory and Development Authority of India (Unit Linked Insurance Products) Regulations, 2019 dated the 8th day of July, 2019.
(ii) insert fourth proviso to clause (10D) of section 10 of the Act to provide that the exemption under this clause shall not apply with respect to any ULIP issued on or after the 1st February, 2021, if the amount of premium payable for any of the previous year during the term of the policy exceeds two lakh and fifty thousand rupees.
(iii) insert fifth proviso to this clause to provide that, if premium is payable by a person for more than one ULIPs, issued on or after the 1st February, 2021, exemption under this clause shall be available only with respect to such policies aggregate premium whereof does not exceed the amount of two lakh fifty thousand rupees, for any of the previous years during the term of any of the policy.
(iv) insert sixth proviso to this clause providing that the provisions of fourth and fifth provisos shall not apply to any sum received on the death of a person.
(v) insert seventh proviso to this clause to enable CBDT to issue guidelines with the approval of Central Government for the purpose of removing the difficulty and to lay every guideline issued by the Board before each House of Parliament and to make it binding on the income-tax authorities and the assessee.
(vi) provide that a ULIP [to which exemption under clause (10D) of section 10 of the Act does not apply on account of the applicability of the fourth and fifth proviso] is a capital asset under clause (14) of section 2 of the Act.
(vii) provide for the deemed taxation of profit and gains from the redemption of ULIP [to which exemption under clause (10D) of section 10 of the Act does not apply on account of the applicability of the fourth and fifth proviso] as capital gains by inserting new sub-section (1B) in section 45 and to take power to prescribe rules for calculation of such capital gains.
(viii) Include such ULIPs [to which exemption under clause (10D) of section 10 of the Act does not apply on account of the applicability of the fourth and fifth proviso] in the definition of equity oriented fund in section 112A so as to provide them same treatment as unit of equity oriented fund. Thus provisions of section 111A and 112A would apply on sale/redemption of such ULIPs.
These amendments will take effect from 1st April, 2021 and will accordingly apply to the assessment year 2021-22 and subsequent assessment years.
[Clauses 3, 5, 14 and 29]
Consequential amendment has also been proposed in Finance (No 2) Act, 2004 to make security transaction tax applicable on maturity or partial withdrawal with respect to unit linked insurance policy issued by insurance company on or after the 1st February, 2021 [to which exemption under clause (10D) of section 10 of the Act does not apply on account of the applicability of the fourth and fifth proviso]
This amendment will take effect from 1st February, 2021.
[Clauses 154 to 158]
Text of the Relevant Clause of the Finance Bill 2021
Clause 3 of the Bill seeks to amend section 2 of the Income-tax Act relating to definitions.
Clause (11) of the said section, inter alia, defines “block of assets” to mean a group of assets falling within a class of assets comprising tangible assets, being buildings, machinery, plant or furniture and intangible assets, being know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature.
It is proposed to amend the said clause so as to exclude goodwill of a business or profession from the purview of “block of asset”.
It is further proposed to amend clause (14) of the said section which defines the expression “capital asset. It is proposed to insert sub-clause (c) to the said clause so as to include any unit linked insurance policy to which exemption under clause (10D) of section 10 does not apply on account of the applicability of the fourth and fifth proviso thereof.
It is also proposed to amend clause (19AA) of the said section which defines the term “demerger”, in relation to companies, means the transfer, pursuant to a scheme of arrangement under sections 391 to 394 of the Companies Act, 1956, by a demerged company of its one or more undertakings to any resulting company on satisfaction of conditions provided by rules in the said clause.
It is proposed to amend the said clause to insert an Explanation so as to clarify that the reconstruction or splitting up of a public sector company into separate companies shall be deemed to be a demerger, if such reconstruction or splitting up has been made to transfer any asset of the demerged company to the resulting company and such resulting company–
(i) is a public sector company on the appointed date indicated in such scheme as may be approved by the Central Government or any other body authorised under the provisions of the Companies Act, 2013 or any other law for the time being in force governing such public sector companies in this behalf; and
(ii) fulfills such other conditions as may be notified by the Central Government in the Official Gazette in this behalf.
It is also proposed to insert a new clause (29A) in the said section so as to define the expression “liable to tax”, in relation to a person, means that there is a liability of tax on such person under any law for the time being in force in any country, and shall include a case where subsequent to imposition of tax liability, an exemption has been provided.
It is also proposed to amend clause (42C) of the said section which defines the expression “slump sale” as the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales.
It is proposed to expand the scope of the definition of the term “slump sale” so as to mean the transfer of one or more undertakings, by any means, for lump sum consideration without value being assigned to individual assets and liabilities in such cases.
It is also proposed to insert an Explanation to the said clause so as to provide that the word “transfer” shall have the meaning assigned to it in clause (47) of the said section.
These amendments will take effect from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021-2022 and subsequent assessment years.
It is also proposed to amend clause (48) of the said section provides for definition of “zero coupon bond”, as a bond issued by any infrastructure capital company or infrastructure capital fund or public sector company or scheduled bank and in respect of which no payment and benefit is received or receivable before maturity or redemption from such infrastructure capital company or infrastructure capital fund or public sector company or scheduled bank and which is notified by the Central Government in the Official Gazette.
It is also proposed to amend the said clause so as to insert infrastructure debt fund in sub-clauses (a) and (b) thereof so as to enable notified infrastructure debt fund also to issue zero coupon bonds.
It is also proposed to insert a new Explanation 2 to define the expression “infrastructure debt fund”.
These amendments will take effect from 1st April, 2022 and will, accordingly, apply in relation to the assessment year 2022-2023 and subsequent assessment years.
Clause 5 of the Bill seeks to amend section 10 of the Income-tax Act relating to incomes not included in total income.
The said section provides that in computing the total income of a previous year of any person, certain categories of income shall not be included in the total income.
Clause 4D of said section provides exemption for any income accrued or arisen to, or received by a specified fund as a result of transfer of capital asset referred to in clause (viiab) of section 47, on a recognised stock exchange located in any International Financial Services Centre and where the consideration for such transaction is paid or payable in convertible foreign exchange or as a result of transfer of securities (other than shares in a company resident in India) or any income from securities issued by a non-resident ( not being a permanent establishment of a non-resident in India) and where such income otherwise does not accrue or arise in India or any income from a securitisation trust which is chargeable under the head “Profits and gains of business or profession”, to the extent such income accrued or arisen to, or is received, is attributable to units held by non-resident (not being the permanent establishment of a non-resident in India).
It is proposed to amend the said clause so as to provide that the said exemption shall also be available in case of any income accrued or arisen to, or received to the investment division of offshore banking unit to the extent attributable, and computed in the manner as may be provided by rules.
It is further proposed to insert a new clause (4E) in the said section so as to exempt any income accrued or arisen to, or received by a non-resident as a result of transfer of non-deliverable forward contracts entered into with an offshore banking unit of an International Financial Services Centre as referred to in sub-section (1A) of section 80LA, which fulfills such conditions as may be provided by rules.
It is also proposed to insert a new clause (4F) in the said section so as to exempt any income of a non-resident by way of royalty, on account of lease of an aircraft in a previous year, paid by a unit of an International Financial Services Centre as referred to in sub-section (1A) of section 80LA, if the unit is eligible for deduction under section 80LA for that previous year and has commenced its operations on or before 31st March, 2024.
These amendments will take effect from 1st April, 2022 and will, accordingly, apply in relation to the assessment year 2022-2023 and subsequent assessment years.
Clause (5) of the said section provides for exemption in respect of the value of travel concession or assistance received by or due to an employee from his employer or former employer for himself and his family, in connection with his proceeding on leave to any place in India.
It is proposed to insert a second proviso in the said clause so as to provide that for the assessment year beginning on the 1st day of April, 2021, in the case of an individual, the value in lieu of any travel concession or assistance received by, or due to, such individual shall also be exempted, subject to fulfillment of such conditions (including the condition of incurring such amount of such expenditure within such period), as may be provided by rules.
It is further proposed to insert Explanation 2 so as to clarify that where an individual claims such exemption and the same is allowed under the second proviso in connection with the expenditure provided by rules, no exemption shall be allowed under the said clause in respect of the same expenditure to any other individual.
These amendments will take effect from 1st April, 2021.
Clause (10D) of the said section provides for the exemption for the sum received under a life insurance policy in respect of which the premium payable for any of the years during the terms of the policy does not exceed ten percent of the actual capital sum assured.
It is proposed to insert fourth, fifth, sixth and seventh proviso to the clause. Proposed fourth proviso seeks to provide that the exemption under this clause shall not apply with respect to any unit linked insurance policy, issued on or after the 1st day of February, 2021, if the amount of premium payable for any of the previous year during the term of such policy exceeds two lakh fifty thousand rupees.
Proposed fifth proviso seeks to provide that if the premium is payable, by a person, for more than one unit linked insurance policies, issued on or after the 1st day of February, 2021, the provisions of this clause shall apply only with respect to those insurance policies, where the aggregate amount of premium does not exceed the amount referred to in fourth proviso in any of the previous year during the term of any of those policies.
Proposed sixth proviso seeks to provide that the provisions of the fourth and fifth provisos shall not apply to any sum received on the death of a person.
Proposed seventh proviso seeks to provide that if any difficulty arises in giving effect to the provisions of this clause, the Board may, with the approval of the Central Government, issue guidelines for the purpose of removing the difficulty and every guideline issued by the Board under this proviso shall be laid before each House of Parliament, and shall be binding on the income-tax authorities and the assessee.
It is further proposed to insert Explanation 3 to the said clause so as to define the expression “unit linked insurance policy” as a life insurance policy which has components of both investment and insurance and is linked to a unit as defined in clause (ee) of regulation (3) of the Insurance Regulatory and Development Authority of India (Unit Linked Insurance Products) Regulations, 2019 issued by Insurance Regulatory and Development Authority under the Insurance Regulatory Act, 1938 and the Insurance Regulatory and Development Authority Act, 1999.
These amendments will take effect from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021-2022 and subsequent assessment years.
Clause (11) of the said section provides for exemption with respect to any payment from a provident fund to which the Provident Funds Act, 1925 applies or from any other provident fund set up by the Central Government and notified by it in this behalf in the Official Gazette.
Clause (12) of the said section provides for exemption with respect to the accumulated balance due and becoming payable to an employee participating in a recognised provident fund, to the extent provided in rule 8 of Part A of the Fourth Schedule.
It is proposed to insert a proviso to such of the aforesaid clauses so as to provide that the provisions of these clauses shall not apply to the income by way of interest accrued during the previous year in the account of a person to the extent it relates to the amount or the aggregate of amounts of contribution made by that person exceeding two lakh and fifty thousand rupees in any previous year in that fund, on or after the 1st day of April, 2021 and computed in such manner as may be provided by rules.
These amendments will take effect from 1st April, 2022 and will, accordingly, apply in relation to the assessment year 2022-2023 and subsequent assessment years.
Sub-clause (iiiad) of clause (23C) of the said section provides for exemption for the income received by any person on behalf of university or educational institution as referred to in that sub-clause. The exemptions under the clause are available subject to the condition that the annual receipts of such university or educational institution do not exceed the annual receipts as may be prescribed.
Similarly, sub-clause (iiiae) of the said clause provides for exemption for the income received by any person on behalf of hospital or institution as referred to in that sub-clause. The exemptions under the clause are available subject to the condition that the annual receipts of such hospital or institution do not exceed the annual receipts as may be prescribed.
Presently, the amount prescribed for sub-clause (iiiad) as well as (iiiae) is one crore rupees. It is proposed to increase the limit of annual receipts, for exemption under sub-clause (iiiad) and (iiiae), to five crore rupees and provide that such limit shall be applicable for an assessee with respect to the aggregate receipts from university or universities or educational institution or institutions as referred to in sub-clause (iiiad) as well as from hospital or hospitals or institution or institutions as referred to in sub-clause (iiiae).
Explanation to the third proviso to the said clause provides that income of the funds or trust or institution or any university or other educational institution or any hospital or other medical institution, shall not include income in the form of voluntary contributions made with a specific direction that they shall form part of the corpus.
It is proposed to number the said Explanation as Explanation 1 thereof and to provide that such voluntary contributions should be invested or deposited in one or more of the forms or modes specified in sub-section (5) of section 11 maintained specifically for such corpus.
It is further proposed to insert Explanation 2 in the said proviso so as to provide that,––
(a) application out of such corpus shall not be considered as application for charitable or religious purposes for the purposes of third proviso of clause (23C), provided when it is invested or deposited back, into one or more of the forms or modes specified in sub-section (5) of section 11 maintained specifically for such corpus from the income of the previous year, such amount shall be allowed as application in the previous year in which it is deposited back to corpus and to the extent it is deposited back;
(b) application from loans and borrowings shall not be considered as application for charitable or religious purposes for the purposes of third proviso of clause (23C) provided when loan or borrowing is repaid from the income of the previous year, such repayment shall be allowed as application in the previous year in which it is repaid and to the extent it is repaid.
Fourteenth proviso of the said clause provides that if any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of said clause of said section accumulates its income, then payment or credit out of such accumulation, to exempt entities as prescribed in the proviso, shall not be treated as application.
It is proposed to amend the said proviso to make a reference of section 12AB which provides for the procedure of registration.
It is also proposed to number the Explanation as Explanation 1 thereof the twentieth proviso to the said clause and to insert a new Explanation 2 therein so as to provide that for the computation of income required to be applied or accumulated during the previous year, no set off or deduction or allowance of any excess application, of any of the year preceding the previous year, shall be allowed.
These amendments will take effect from 1st April, 2022 and will, accordingly, apply in relation to the assessment year 2022-2023 and subsequent assessment years.
Clause (23FE) of the said section provides for the exemption to specified person from the income in the nature of dividend, interest or long-term capital gains arising from an investment made by it in India.
Item (c) of sub-clause (iii) of the said clause provides that the specified person may invest in a Category-I or Category-II Alternative Investment Fund regulated under the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012, made under the Securities and Exchange Board of India Act, 1992, having hundred per cent. investment in one or more of the company or enterprise or entity referred to in item (b).
It is proposed to relax the said condition of “hundred per cent.” to “not less than fifty per cent”. It is further proposed to allow the investment by such Category-I or Category-II Alternative Investment Fund in an Infrastructure Investment Trust referred to in sub-clause (i) of clause (13A) of section 2.
It is also proposed to insert item (d) in sub-clause (iii) of the said clause allowing the investment by specified person in a domestic company set up and registered on or after 1st April, 2021, having minimum seventy-five per cent. investments in one or more of the company or enterprise or entity referred to in item (b).
It is also proposed to insert item (e) in the said sub-clause allowing the investment by specified person in a non-banking financial company registered as an Infrastructure Finance Company, as referred to in the notification number RBI/2009-10/316 issued by the Reserve Bank of India or in an Infrastructure Debt Fund, a non banking finance company as referred to in the master circular, namely, the Infrastructure Debt Fund-Non Banking Financial Companies (Reserve Bank) Directions, 2011, issued by the Reserve Bank of India, having minimum ninety per cent. investment in one or more of the companies or enterprises or entities referred to in item (b).
It is also proposed to insert fourth proviso to the said clause so as to provide that in case a Category-I or Category-II Alternative Investment Fund referred to in item (c) of sub-clause (iii) has investment of less than one hundred per cent. in one or more of the companies or enterprises or entities referred to in item (b) of the said sub-clause or in an Infrastructure Investment Trust referred to in item (c) of that sub-clause, income, accrued or arisen to or received or attributable to such investment, directly or indirectly, which is exempt under the said clause shall be calculated proportionately to the investment made in one or more of the companies or enterprises or entities referred to in item (b) of that sub-clause or in the Infrastructure Investment Trust referred to in item (c) of that sub-clause, in such manner as may be provided by rules.
It is also proposed to insert fifth proviso to the said clause so as to provide that in case a domestic company referred to in item (d) of sub-clause (iii) has investment of less than one hundred per cent. in one or more of the companies or enterprises or entities referred to in item (b) of the said sub-clause, income, accrued or arisen to or received or attributable to such investments, directly or indirectly, which is exempt under the said clause shall be calculated proportionately to the investment made in one or more of the companies or enterprises or entities referred to in item (b) of that sub-clause (iii), in such manner as may be provided by rules.
It is also proposed to insert sixth proviso to the said clause so as to provide that in case a non-banking financial company registered as an Infrastructure Finance Company or Infrastructure Debt Fund referred to in item (e) of sub-clause(iii), has lending of less than one hundred per cent. in one or more of the companies or enterprises or entities referred to in item (b) of the said sub-clause, income, accrued or arisen to or received or attributable to such lending, directly or indirectly, which is exempt under the said clause shall be calculated proportionately to the lending made in one or more of the companies or enterprises or entities referred to in item (b) of that sub-clause, in such manner as may be provided by rules.
It is also proposed to insert seventh proviso to the said clause so as to provide that in case a sovereign wealth fund or pension fund has loan or borrowing, directly or indirectly, for the purposes of making investment in India, such fund shall be deemed to be not eligible for exemption under this clause.
It is also proposed to number the Explanation as Explanation 1 thereof.
It is also proposed to insert a proviso to the sub-clauses (iii) and (iv) of clause (b) of the said Explanation 1 so as to provide that the provisions of sub-clauses (iii) and (iv) shall not apply to any payment made to creditors or depositors for loan taken or borrowing for purposes other than for making investment in India.
It is also proposed to amend sub-clause (v) of clause (b) of the said Explanation 1 so as to provide that the sovereign wealth fund does not participate in the day to day operations of investee but the monitoring mechanism to protect the investment with the investee including the right to appoint directors or executive director shall not be considered as participation in day to day operations of the investee.
It is also proposed to amend sub-clause (ii) of clause (c) of the said Explanation 1 so as to provide that if pension fund is liable to tax but exemption from taxation for all its income has been provided, by the foreign country under whose laws it is created or established, then such pension fund also would satisfy the condition mentioned in sub-clause (ii). It is also proposed to insert sub-clause (iiia) to the clause to provide that the pension fund does not participate in the day to day operations of investee but the monitoring mechanism to protect the investment with the investee including the right to appoint directors or executive director shall not be considered as participation in day to day operations of investee.
It is also proposed to insert a new Explanation 2 in the said clause to define the expressions “loan and borrowing” and “investee”.
It is also proposed to insert a new Explanation 3 so as to provide that the Central Government may, by rules, provide the method of calculation of “fifty per cent.” referred to in item (c) or “seventy-five per cent.” referred to in item (d) or “ninety per cent.” referred to in item (e), of sub-clause (iii) of the said clause.
These amendments will take effect from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021-2022 and subsequent assessment years.
It is also proposed to insert a new clause (23FF) in the said section so as to exempt any income of the nature of capital gains, arising or received by a non-resident, which is on account of transfer of share of a company resident in India, by the resultant fund and such shares were transferred from the original fund to the resultant fund in relocation, and where capital gains on such shares were not chargeable to tax if that relocation had not taken place.
It is also proposed to refer to the definitions of the expressions “investment division of offshore banking unit”, “original fund”, “relocation” and “resultant fund” as defined in the Explantion to clause (viiac) and clause (viiad) of section 47.
These amendments will take effect from 1st April, 2022 and will, accordingly, apply in relation to the assessment year 2022-2023 and subsequent assessment years.
Clause (50) of the said section provides for the exemption for the income arising from any specified service provided on or after the date on which the provisions of Chapter VIII of the Finance Act, 2016 comes into force or arising from any e-commerce supply or services made or provided or facilitated on or after 1st April, 2021 and chargeable to equalisation levy under the provisions of that Chapter. It is proposed to change the said year to 2020.
It is proposed to substitute the Explanation to the said clause with Explanations 1 and 2. Explanation 1 proposes to clarify that the income referred to in this clause shall not include and shall never be deemed to have included any income which is chargeable to tax as royalty or fees for technical services in India under the said Act read with the agreement notified by the Central Government under section 90 or section 90A.
Explanation 2 proposes to define the expressions “e-commerce supply or services” and “specified service” for the purposes of the said clause.
These amendments will take effect from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021-2022 and subsequent assessment years.
Clause 14 of the Bill seeks to amend section 45 of the Income-tax Act relating to Capital gains.
The aforesaid section inter alia, provides that any profits or gains arising from the transfer of a capital asset shall be chargeable to income-tax under the head “Capital gains” and shall be deemed to be the income of the previous year in which such transfer took place. Further, sub-section (4) of the said section, provides that the profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm or other association of persons or body of individuals (not being a company or a cooperative society) or otherwise, shall be chargeable to tax as the income of the firm, association or body, of the previous year in which the said transfer takes place.
It is proposed to insert sub-clause (1B) so as to provide that notwithstanding anything contained in sub-section (1), where any person receives at any time during any previous year any amount under a unit linked insurance policy, to which exemption under clause (10D) of section 10 does not apply on account of the applicability of the fourth and fifth proviso thereof, including the amount allocated by way of bonus on such policy, then, any profits or gains arising from receipt of such amount by such person shall be chargeable to income-tax under the head “Capital gains” and shall be deemed to be the income of such person of the previous year in which such amount was received and the income taxable shall be calculated in such manner as may be provided by rules.
It is further proposed to substitute sub-section (4) in the said section so as to provide that where a specified person receives during the previous year any capital asset at the time of its dissolution or reconstitution of the specified entity, which represents the balance in his capital account in the books of accounts of such specified entity at the time of dissolution or reconstitution, then any profits or gains arising from receipt of such capital asset by the specified person shall be chargeable to income-tax as income of such specified entity under the head “Capital gains” and shall be deemed to be the income of such specified entity of the previous year in which such capital asset was received by the specified person.
It is also proposed to amend the section to provide that fair market value of the capital asset on the date of such receipt shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of such capital asset.
It is also proposed to amend the section to provide that the cost of acquisition of the capital asset shall be determined in accordance with the provisions of this Chapter.
It is also proposed to amend the section to provide that the balance in the capital account of the specified person in the books of account of the specified entity is to be calculated without taking into account increase in the capital account of the specified person due to revaluation of any asset or due to self-generated goodwill or any other self-generated asset.
It is also proposed to amend the section to define the expressions “self-generated goodwill” and “self-generated assets”, “specified entity” and “specified person”.
It is also proposed to insert sub-section (4A) in the said section so as to provide that where a specified person receives during the previous year any money or other asset at the time of dissolution or reconstitution of the specified entity, which is in excess of the balance in his capital account in the books of accounts of such specified entity at the time of its dissolution or reconstitution, then any profits or gains arising from receipt of such money or other asset by the specified person shall be chargeable to income-tax as income of such specified entity under the head “Capital gains” and shall be deemed to be the income of such specified entity of the previous year in which such money or other asset was received by the specified person.
It is also proposed to amend the section to provide that value of any money or the fair market value of other asset on the date of such receipt shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of such capital asset.
It is also proposed to amend the section to provide that the balance in the capital account of the specified person in the books of accounts of the specified entity at the time of its dissolution or reconstitution shall be deemed to be the cost of acquisition and the balance in the capital account of the specified person in the books of account of the specified entity is to be calculated without taking into account increase in the capital account of the specified person due to revaluation of any asset or due to self-generated goodwill or any other self-generated asset.
It is also proposed to amend the section to provide that for the purpose of this subsection, the expressions “specified entity”, “self-generated goodwill”, “self-generated asset” and “specified person” shall have the meaning assigned to them in sub-section (4) of the Act.
These amendments will take effect from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021-2022 and subsequent assessment years.
Clause 29 of the Bill seeks to amend section 112A of the Income-tax Act relating to tax on long-term capital gains in certain cases.
Explanation to the said section, inter alia, provides for the definition of the expression “equity oriented fund”.
It is proposed to amend the said Explanation to the section so as to include a fund set up under a scheme of an insurance company comprising unit linked insurance policies to which exemption under clause (10D) of section 10 does not apply on account of the applicability of the fourth and fifth proviso thereof within the definition of “equity oriented fund”.
This amendment will take effect from 1st April, 2021 and will, accordingly, apply in relation to the assessment year 2021-2022 and subsequent assessment years.
Clause 154 and 155 of the Bill seeks to amend section 97 of the Finance Act (No.2) Act, 2004.
Chapter-VII of the said Act provides for Securities Transaction Tax.
It is proposed to amend sub-clause (b) of clause (13) of section 97 of the said Act so as to include sale or surrender or redemption of a unit of an equity oriented fund to the insurance company, on maturity or partial withdrawal, with respect to unit linked insurance policy issued by such insurance company on or after 1st February, 2021, under the definition of “taxable securities transaction”.
It is further proposed to insert clause (13A) to the said section define the expression “unit linked insurance policy”.
These amendments will take effect retrospectively from 1st February, 2021.
Clause 156 of the Bill seeks to amend section 98 of the Finance Act (No.2) Act, 2004.
It is proposed to insert serial number 5A and entries relating thereto in the Table in section 98 so to provide that the rate for sale or surrender or redemption of a unit of an equity oriented fund to an insurance company, on maturity or partial withdrawal, with respect to unit linked insurance policy issued by such insurance company on or after 1st February, 2021.
This amendment will take effect retrospectively from 1st February, 2021.
Clauses 157 and 158 of the Bill seeks to amend sections 100 and 101 of the Finance Act (No.2) Act, 2004.
It is proposed to consequentially amend sections 100 and 101 of the said Act so as to include insurance company within their purview.
This amendment will take effect retrospectively from 1st February, 2021.
I have bought LIC Samridhi Plus (804) which is an ULIP based scheme in May 2011 with one time down payment of Rs 5 Lac (in which insurance cover was for Rs 5.50 Lacs).
I en-cashed it after 10 years in May 2021 for Rs 11.26 Lacs.
I have purchased my ULIP before Feb 1, 2021 i.e. the effective date from when the fifth proviso to section 10(10D) added by Finance Bill, 2021 reading as: if premium is payable by a person for more than one ULIPs, issued on or after the 1st February, 2021, exemption under this clause shall be available only with respect to such policies aggregate premium whereof does not exceed the amount of two lakh fifty thousand rupees, for any of the previous years during the term of any of the policy.
In context of the amendment as above to bring ULIPs with premium exceeding Rs. 250000 out of exemption u/s 10(10D) by virtue of Finance Bill, 2021, I want to know that why exemption u/s 10(10D) is not available to ULIPs issued before Feb 1, 2021 for premiums exceeding Rs. 2.50 Lakh.
LIC has deducted TDS u/s 194DA of Rs 31,323 @5% as apparently it did not qualify under Sec 10 (10 D) as tax free income as per LIC.
I now want to know how shall I treat this income. Will it be treated as a long term capital gain with indexation benefit from FY 2011-12 to FY 2021-22? Or am I supposed to add the entire gain/surplus of Rs 6.26 Lac to this year’s income as Other Income along with FD interest?