To be taxed Ulips investment products

The Finance Ministry has said the unit-linked insurance products (Ulips) are investment products and are therefore possible to be taxed after performance of the Direct Taxes Code (DTC). "Ulips are basically investment products and wanted to be taxed.

The final sight, however, will be taken at the time of the formulation of the code", the finance ministry sources said here today. At present, no tax is levy on the returns on Ulips, an equity-linked insurance implement, the regulation of which has become a bone of contention between the insurance regulator Irda and market watchdog Sebi.

Ulips are hybrid investment-cum-insurance products and report for over 50(%) per cent of the total insurance business in the country. When contacted, Life Insurance Council secretary General SB Mathur said, "We have maintained that Ulips are not pure investment products.

But calling them pure investment product is not right. We will approach the income department in due course.

“As per the revised DTC, which will replace the 50-year-old Income Tax Act, only six particular instruments will qualify for the EEE (exempt-exempt-exempt) taxation. Under the EEE mode, tax exemption is provided at all the levels of the instrument-- at the time of investment, at accumulation and at the time of withdrawal.

The DTC is expected to be ready from next April. The six instruments which will qualify for exemption are government provident fund, public provident fund, recognized provident fund, pension funds regulated by Pension Fund Regulatory and Development Authority (PFRDA), pure life insurance products and annuity plan.

As Ulips are investment products, the Finance Ministry official said, it could not be classify as pure life insurance product. The insurance watchdog Irda is locked in a turf war with Sebi over regulation of Ulips.

The difficulty came to the fore after Irda advised 14 life insurance companies to ignore the April 9 Sebi''s order banning Ulip schemes. The row impelled the Finance Ministry to interfere in the matter and mediate an agreement under which both the regulators agreed to seek a legally compulsory order on Ulip jurisdiction.

Following this, Sebi moved the Supreme Court to transfer all cases pertaining to the Ulip issue to the apex court following which notices were sent to the Centre, Irda and 14 insurers. The top court will hear the matter on July 8.