How to report ULIP income in ITR for AY 2026-27

With the July 31 deadline approaching for taxpayers filing ITR-1 and ITR-2, many are checking whether income from Unit Linked Insurance Plans (ULIPs) needs to be reported in their income tax return and, if yes, where it should be disclosed.

The answer depends on whether your ULIP qualifies for tax exemption under the Income Tax Act. Understanding the tax treatment of ULIPs can help taxpayers avoid mistakes while filing their returns.

What is an ULIP?

A Unit Linked Insurance Plan (ULIP) is an insurance-cum-investment product. A part of the premium you pay goes towards life insurance cover, while the remaining amount is invested in market-linked funds such as equity, debt or balanced funds.

When is ULIP income tax-free?

Whether ULIP proceeds are tax-free or taxable depends mainly on when the policy was issued and how much premium is paid.

According to CA Abhishek Soni, how you report ULIP income in your return depends on whether it qualifies for exemption.

"The way you report ULIP income depends on whether it is taxable or exempt," said Soni.

• If your ULIP maturity amount is exempt under Section 10(10D), report it under Schedule EI (Exempt Income) in your ITR.

• If your ULIP is taxable, report the gains under Schedule Capital Gains. This usually applies to certain ULIPs issued on or after 1 February 2021 where the annual premium exceeds the prescribed limit.

Soni advised tax filers to check their AIS, Form 26AS, and TDS certificate before filing to ensure the income and TDS details are correctly reported.

Vipin Upadhyay, Partner, King Stubb & Kasiva, Advocates and Attorneys, says taxpayers should determine whether their ULIP qualifies for exemption before deciding how to report it.

"The tax treatment of ULIP proceeds depends on whether the policy qualifies for exemption under the Income-tax Act. While eligible ULIPs continue to enjoy tax exemption, policies that do not satisfy the prescribed conditions are taxable and must be reported under the appropriate head of income. Taxpayers should carefully examine the premium thresholds, date of issuance, and insurer's statements before claiming any exemption. Incorrect reporting of exempt or taxable ULIP income may invite unnecessary queries from the tax authorities."

Which ITR form should you use?

If your ULIP gains are taxable, the choice of ITR form also becomes important.

According to Shourya Garg, Advocate at Garg & Garg Tax Associates, taxpayers with taxable ULIP gains cannot report them in ITR-1.

"The rule that decides everything is the two and a half lakh rupee annual premium threshold. If your total ULIP premiums across all policies stay within that limit, maturity proceeds remain fully tax-free under Section 10(10D), nothing to report as taxable income.

Cross that threshold and the exemption is gone entirely; gains get taxed as capital gains under Section 112A instead.

If you held the policy over a year, it is long-term capital gains at twelve point five per cent, with the first one lakh twenty-five thousand rupees of gains exempt each year.

Sell or surrender within a year, and it moves to short-term treatment at slab rates. This needs to go in Schedule CG of ITR-2, not ITR-1, since ITR-1 simply cannot handle capital gains reporting.

One thing people frequently miss, the two and a half lakh threshold is not per policy; it is your combined premium across every ULIP you hold, so splitting premiums across multiple policies will not help you dodge this."

What should taxpayers keep in mind?

Before filing your return, first check whether your ULIP qualifies for exemption under Section 10(10D). If the maturity proceeds are exempt, they should be disclosed under Schedule EI (Exempt Income). If the ULIP is taxable, the gains need to be reported under Schedule CG, which means you will have to file ITR-2 instead of ITR-1.