ITR filing 2026: How to report ULIP income correctly for AY 2026-27 to avoid costly tax filing mistakes
The last date to file your income tax returns is just two days away, with 31 July just around the corner. This calls for swift action by all eligible taxpayers, who are required to file their income tax returns by the stipulated deadline of 31 July.
If you miss this due date, you may incur financial penalties and notices under the applicable income tax provisions.
Filing your income tax return can generally become more complicated if you have generated income from a Unit Linked Insurance Plan (ULIP), due to the implications of the maturity proceeds.
Whether the maturity proceeds are tax-free or taxable depends entirely on the policy’s issue date, basic details and the initial premium paid.
When you know the applicable rules, it can help you report the income you have generated through this investment correctly and avoid notices from the tax department.
What ULIPs are and how they work
A ULIP is an investment option that combines life insurance with market-linked investments. In this, a portion of the premium submitted provides life cover, while the remaining amount is invested in debt, equity or balanced funds to generate market-linked returns.
Section 10(10D) exemption rules
The tax treatment of ULIP proceeds depends primarily on eligibility under Section 10(10D) of the Income Tax Act, 1961. If the policy satisfies the prescribed conditions, the maturity amount remains tax-free and should be disclosed as exempt income in the ITR.
If the policy does not qualify for an exemption, generally because it exceeds the prescribed premium threshold for eligible policies issued on or after 1 February 2021, the gains become taxable as capital gains.
The basic categorisation of tax treatment is discussed below.
|
Situation |
Tax Treatment |
Where to Report |
|---|---|---|
| ULIP qualifies for exemption under Section 10(10D) | Tax-free | Schedule EI (Exempt Income) |
| ULIP does not qualify for exemption | Taxable as capital gains | Schedule CG (Capital Gains) |
Choose right ITR form
Taxable ULIP gains cannot be reported in the simpler ITR-1 form. This is because they fall under the capital gains category, which generally means that taxpayers might need other forms, such as ITR-2, to file their returns.
Before you proceed with the filing of your taxes, verify the details that are reflected in key documents such as the Annual Information Statement (AIS), Form 26AS, and any applicable TDS records, to ensure accuracy in tax submission.
In addition, the premium threshold is calculated based on the total premium paid across all eligible ULIP policies, not on each policy separately. Therefore, taxpayers should review all their policies collectively before determining the tax treatment.
Understanding whether your ULIP qualifies for tax exemption is the first step towards filing an accurate ITR.
You must make sure that you report exempt income under Schedule EI and taxable gains under Schedule CG, and choose the correct ITR form as per your respective case, to help ensure compliance before the upcoming 31 July deadline ends.
Disclaimer: This article is for informational purposes only and should not be treated as tax or financial advice. Tax laws are subject to change, and readers should consult a qualified tax professional or refer to the latest Income Tax Department guidelines before filing their ITR.
