So far, there was no cap on the amount one could invest in ULIP and provident fund to get a tax-free return. The only condition was that the annual premium should not be more than 10% of the insurance cover and the minimum lock in period is 5 years in case of ULIP.
Budget 2021: Live updates
In the provident fund, the lock in is 5 years to get the tax-free return.
Last year’s budget imposed a ceiling of Rs 7.5 lakh a year on employers’ contribution to provident fund schemes. Now contributions of over Rs 2.5 lakh a year to employee provident fund schemes will be taxed at the time of withdrawal.
The rationale given in the budget is that “Instances have come to the notice where some employees are contributing huge amounts to these funds and entire interest accrued/received on such contributions is exempt from tax under clause (11) and clause (12) of section 10 of the Act.”
So far, if the premium paid on Unit Linked Insurance Plans was less than 10% of the total insurance cover, the amount received at the time of maturity was exempt from tax.
Budget 2021 changes that.
For all ULlP policies purchased after February 1, if the premium exceeds more than Rs 2.5 lakh a year, the maturity amount will be subjected to capital gains tax.
(The story will be updated as we get more information)