What are the New Tax Rules? What is Their Impact on ULIP Investments?

IndiaFirst Life
• 09 Sep, 2025

New Tax Rules & Its Impact on ULIP Investments

Unit-Linked Insurance Plans (ULIPs) have long been popular because they combine life insurance with investment benefits. However, the latest Union Budget has introduced new rules regarding their tax treatment. These rules will impact how investors view these products. Let’s break down the new tax rules and their impact on ULIPs and what they mean for you.

How the New Tax Rules Will Affect ULIP Investments**

Earlier, ULIP maturity proceeds were exempt from tax under Section 10(10D) of the Income Tax Act, provided they met certain conditions. Now, the new tax framework has tightened these rules.

A ULIP plan that does not qualify for exemptions under Section 10(10D) will now be treated as a capital asset. Gains from such policies will be taxed as capital gains, similar to equity-oriented mutual funds. This change removes earlier ambiguities, especially around ULIPs purchased before February 1, 2021.

To continue enjoying tax-free maturity benefits, annual premiums must meet the following conditions:

For policies issued after April 1, 2012, premiums should not exceed 10% of the sum assured.
The total annual premium across all ULIPs should remain below ₹2.5 lakh.

By taxing non-exempt ULIPs as capital gains, they are now more comparable to mutual funds.

In short, if your ULIP premiums exceed the set thresholds, the gains will no longer be tax-free. Instead, they will be subject to capital gains tax.

Benefits of Opting for ULIPs

Despite the new rules, ULIPs remain attractive for many reasons. Their unique combination of investment and insurance continues to appeal to long-term investors.

Dual Benefit

The premiums you pay not only provide you with life insurance coverage but also get invested in equity, debt, or hybrid funds (based on your risk appetite).
Wealth Creation with Protection

Unlike standalone investment products, ULIPs ensure that your family remains financially secure while your money grows. You can use a ULIP calculator to plan your investment more effectively.
Flexibility

You can switch between equity and debt funds within the policy, so that you can adjust your portfolio as market conditions change.
Discipline

The 5-year lock-in period ensures that investors commit to long-term savings, which is crucial for wealth accumulation.
Long-Term Growth

If you check ULIP returns in 20 years, you will notice that disciplined investing in equity-linked ULIPs can generate substantial wealth while also offering insurance cover.
Tax Advantages**

Even though some high-premium ULIPs will face capital gains tax, policies meeting the Section 10(10D) criteria still enjoy tax exemptions. In addition, the ULIP premiums paid also qualify for deductions under Section 80C of the Income Tax Act.

Investors can also use a ULIP calculator to get an idea of maturity values and compare the potential of different policies. This makes it easier to plan how much to invest regularly.

Thus, while a ULIP plan may now resemble other investment products in taxation, its combination of protection and investment makes it a unique offering.

The new tax rules and their impact on ULIP can make the unique financial product more attractive for certain investors. While non-exempt ULIPs will now be taxed as capital assets, investors can be assured of transparent and uniform ULIP taxation.

For those who have kept their premiums within limits, ULIPs still provide tax efficiency, long-term savings, and family protection. So, if you are planning to buy a life insurance policy that offers more than just the regular life cover, consider going for ULIPs.

** Tax exemptions are as per applicable tax laws from time to time

by IndiaFirst Life
Headquartered in Mumbai, IndiaFirst Life Insurance Company Limited (IndiaFirst Life), with a paid-up share capital of INR 754.37 crore, is one of the fastest growing private life insurers in India in terms of New Business IRP in Fiscal 2023. Our key differentiators are our simple, easy-to-understand products that are optimally priced. As of Sept 30, 2023, we offered 30 retail products, 13 group products along with six riders (across retail and group portfolios), along with policies under the PMJJBY scheme, catering to protection, savings, health and retirement needs of our customers, leveraging multiple distribution capabilities and augmenting various investment options. In all propositions under the categories of Participating Plans, Non-Participating Savings Plans, Non-Participating Protection Plans, Unit Linked Insurance Plans, Group Protection Plans, Corporate Funds Plans, Riders & PMJJBY form a complete suite of offerings that help our customers prepare for the certainties of life. Our products are easy to understand and optimally priced with a developed comprehensive risk management framework/policy.