A ULIP Bought Before Feb 2021 Keeps a Benefit Newer Ones Lost

ULIP maturity proceeds have long been sold on Section 10(10D)’s exemption - the payout, insurance plus investment, comes out entirely tax-free. The Finance Act 2021 narrowed that, and the narrowing has a precise date attached to it that changes what any given ULIP is actually entitled to.

For ULIPs issued on or after 1 February 2021, the exemption is capped: if the annual premium exceeds ₹2.5 lakh in any year of the policy, the maturity proceeds lose the Section 10(10D) exemption entirely and are taxed as capital gains instead. For ULIPs issued before that date, the old, uncapped exemption continues to apply - regardless of how large the annual premium is, and regardless of when after 2021 that policy eventually matures.

The Anchor Is the Issue Date, Not the Premium Year

The date the rule is anchored to is the policy’s issue date, not the year the premium happens to be paid or the year it matures. A ULIP issued in January 2021 with a ₹5 lakh annual premium keeps its full exemption at maturity, whenever that maturity falls. An otherwise identical ULIP issued a month later, in February 2021, loses it the moment its premium crosses ₹2.5 lakh in any year - a one-month difference in purchase date deciding whether a large policy’s payout is tax-free or taxed as a capital gain.

Confirm the Grandfathering Rather Than Assuming It

For anyone holding a ULIP bought before February 2021, this is worth confirming rather than assuming away - the grandfathering is real and the exemption on that specific policy hasn’t been quietly narrowed along with the newer rules. For anyone buying one now, the ₹2.5 lakh premium threshold is the number that decides whether “tax-free maturity” describes the product being bought, or describes a different product that used to exist under the same name.

Find the issue date on the policy document before relying on a tax-free maturity. One month either side of 1 February 2021 decides whether a large policy pays out exempt or as a capital gain, and nothing about the product name distinguishes the two.