How to pay Income Tax on ULIP Insurance Policies I CBDT Clarifications

Circular No. 2 of 2022

F. No.370142 /61/2021-TPL
Government of India
Ministry of Finance
Department of Revenue
(Central Board of Direct Taxes)
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Dated: 19th January, 2022

Sub: Guidelines under clause (10D) section 10 of the Income-tax Act, 1961 – reg.
Clause (10D) of section 10 of the Income-tax Act, 1961 (the Act) provides for
income-tax exemption on the sum received under a life insurance policy, including any sum
allocated by way of bonus on such policy subject to certain exclusions.
2. The Finance Act, 2021 amended clause (10D) of section 10 of the Act by inserting
fourth to seventh provisos. Fourth proviso provides that, with effect from 01.02.2021, the
sum received under a Unit Linked Insurance Policy (ULIP), issued on or after 01.02.2021,
shall not be exempt under the said clause if the amount of premium payable for any of the
previous years during the term of such policy exceeds Rs 2,50,000. Further, fifth proviso
provides that if premium is payable for more than one ULIP, issued on or after 01.02.2021,
the exemption under the said clause shall be available only with respect to such policies
where the aggregate premium does not exceed Rs 2,50,000 for any of the previous years
during the term of any of those policies. Sixth proviso provides that the fourth and fifth
provisos shall not apply in case of sum received on death of the person.
3. Seventh proviso to the said clause (10D) also empowers the Central Board of Direct
Taxes (Board) to issue guidelines, with the previous approval of the Central Government, in
order to remove any difficulty which arises while giving effect to the provisions of the said
clause. In exercise of the powers under this proviso, Board, with the previous approval of the
Central Government, hereby issues the following guidelines.
4. Sum received including any sum allocated by way of bonus (hereinafter referred as
“consideration”) during the previous year (hereinafter referred as “current previous year”)
under any one or more ULIPs issued on or after 01.02.2021 (hereinafter referred as “eligible
ULIP”) shall be exempt under clause (10D) of section 10 of the Act, subject to the

satisfaction of other provisions of said clause. The same are explained by way of examples of
different situations:-
4.1 Situation1: No consideration is received by the assessee on any eligible ULIPs during
any previous year preceding the current previous year or consideration has been received on
such eligible ULIPs but has not been claimed exempt. The exemption under clause (10D) of
section 10 of the Act shall be determined as under:
i. If the assessee has received consideration, during the current previous year, under one
eligible ULIP only and the amount of premium payable on such eligible ULIP does
not exceed Rs 2,50,000 for any of the previous years during the term of such eligible
ULIP, such consideration shall be eligible for exemption under the said clause (10D);
ii. If the assessee has received consideration, during the current previous year, under one
eligible ULIP only and the amount of premium payable on such eligible ULIP
exceeds Rs 2,50,000 for any of the previous years during the term of such eligible
ULIP, such consideration shall not be eligible for exemption under the said clause
(10D);
iii. If the assessee has received consideration, during the current previous year, under
more than one eligible ULIPs and the aggregate of the amount of premium payable on
such eligible ULIPs does not exceed Rs 2,50,000 for any of the previous years during
the term of such eligible ULIPs, such consideration shall be eligible for exemption
under the said clause (10D);
iv. If the assessee has received consideration, during the current previous year, under
more than one eligible ULIPs and the aggregate of the amount of premium payable on
such eligible ULIPs exceeds Rs 2,50,000 for any of the previous years during the term
of such eligible ULIPs, the consideration under only such eligible ULIPs shall be
eligible for exemption under the said clause (10D) where aggregate of the amount of
the premium payable does not exceed Rs 2,50,000 for any of the previous years
during their term (Refer Examples).

4. 2 Situation 2: Consideration has been received by the assessee under any one or more
eligible ULIPs during any previous year preceding the current previous year and it has been
claimed to be exempt under clause (10D) of section 10 of the Act. Such eligible ULIPs are
referred as “Old ULIPs” in this paragraph and corresponding examples and reference to

eligible ULIPs shall not include old ULIPs. The exemption under clause (10D) of section 10
of the Act shall be determined as under:
i. If the assessee has received consideration, during the current previous year, under
one eligible ULIP only and aggregate amount of premium payable on such eligible
ULIP and old ULIPs does not exceed Rs 2,50,000 for any of the previous year
during the term of such eligible ULIP, the consideration under such eligible ULIP
shall be eligible for exemption under the said clause (10D);
ii. If the assessee has received consideration, during the current previous year, under
one eligible ULIP only and aggregate amount of premium payable on such eligible
ULIP and old ULIPs exceeds Rs 2,50,000 for any of the previous year during the
term of such eligible ULIP, the consideration under such eligible ULIP shall not be
eligible for exemption under the said clause (10D);
iii. If the assessee has received consideration, during the current previous year, under
more than one eligible ULIPs and aggregate of the amount of premium payable on
such eligible ULIPs and old ULIPs does not exceeds Rs 2,50,000 for any of the
previous year during the term of such eligible ULIPs, such consideration shall be
eligible for exemption under the said clause (10D);
iv. If the assessee has received consideration, during the current previous year, under
more than one eligible ULIPs and aggregate of the amount of premium payable on
such eligible ULIPs and old ULIPs exceeds Rs 2,50,000 for any of the previous year
during the term of such eligible ULIPs, consideration under only such eligible
ULIPs shall be eligible for exemption under the said clause (10D) where aggregate
amount of premium along with the aggregate amount of premium of old ULIPs does
not exceed Rs 2,50,000 for any of the previous year during the term of any of such
eligible ULIPs (refer examples).

4.3 The above guidelines are explained with the help of the following examples:
Example 1:
The assessee has the following policy which satisfies all the conditions laid down in clause
(10D) of section 10 of the Act (other than the conditions provided under the fourth and fifth
proviso of the said clause, applicability whereof is being explained in the example).

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