Budget 2025 has brought about changes to Ulips, tax on NPS Vatsalaya and for filing of updated income tax returns

Ulip tax, updated ITR, NPS Vatsalya and other Budget 2025 personal finance changes that can impact you Read our story to know how these changes will affect taxpayers

Clarification on Ulip maturity
The Budget has clarified that Ulip redemptions that are not tax-exempt under Section 10(10D)—where the aggregate annual premium exceeds Rs.2.5 lakh— will now be considered capital gains and taxed accordingly. This move brings Ulips on par with equity-oriented mutual funds. “If held for more than 12 months, the Ulip will be classified as a long-term capital asset and subject to 12.5% tax,” says Neeraj Agarwala, Partner, Nangia Andersen India.

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Currently, for Ulips bought after 1 February 2021, the redemption is tax-free under Section 10(10D) only if the annual premium of one or multiple policies does not exceed Rs.2.5 lakh. Adds Tarun Chugh, MD & CEO, Bajaj Allianz Life Insurance: “The clarification is a welcome step towards greater transparency and consistency in tax treatment.

Updated ITR timeline

If you miscalculate or miss a source of income while filing tax returns, you can file an updated return under Section 139(8A), which was introduced in Budget 2022. While earlier you could update the returns for up to two years from the end of the relevant assessment year, Budget 2025 has proposed that this window be extended to four years. You cannot, however, claim refunds, reduce your tax liability or show increased losses in updated returns.

The tax payable is 60% of the tax and interest on additional income for filing updated returns within three years (24-36 months) from the end of the assessment year, and 70% for filing within four years (36-48 months) from the end of the assessment year. This amount is 25% for filing within a year and 50% within two years.

Central KYC registry
The Budget has proposed the revamp of central know your customer (KYC) process across financial sectors and products to ease the investor burden. This will allow customers to register and complete the KYC process just once, since the CKYC registry will allow inter-usability of customer data for various purposes, be it investing in mutual funds or the NPS, banking or buying insurance. With this move, investors can avoid the duplication of the entire process of sharing KYC details each time an entity asks, saving time and effort.

NPS Vatsalya taxation like NPS

The tax exemption for NPS will now be extended to NPS Vatsalya too. Under Section 80CCD (1B), an additional deduction for investment up to Rs.50,000 in NPS is available under the old tax regime. This shall now be available to parents or guardians who invest in NPS Vatsalya for their children, dependants or specified beneficiaries.

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“The scheme is meant to encourage parents to create financial security for kids, but the bigger impact is nullified as it’s only applicable to those in the old tax regime,” says Dinesh Rohira, Founder & CEO, 5nance.com. Adds Sriram Iyer, CEO, HDFC Pension Fund: “This should accelerate the adoption of NPS Vatsalya, given the tax benefit that the parent will get.” More importantly, it brings clarity on tax treatment for NPS Vatsalya. So, 60% of withdrawals will be tax-exempt, while 40% will be mandatorily deployed to an annuity. “This clarity was missing earlier,” says Sumit Shukla, CEO, Axis Pension Fund.

NSS withdrawals tax-exempt

All withdrawals from the National Savings Scheme, made on or after 29 August 2024, will now enjoy tax exemption for any amount deposited and interest accrued, for which a deduction has been allowed.

All accounts opened under the NSS-87 and NSS-92 in this scheme have not attracted any interest after 1 October last year, as per a Finance Ministry directive issued last year.

This story originally appeared on: India Times - Author:Faqs of Insurances