As per the NISM Series X-B workbook, following the Finance Act, 2021 amendment to Section 10(10D) of the Income Tax Act, under which condition does a Unit Linked Insurance Plan (ULIP) issued on or after February 1, 2021 LOSE its tax exemption on maturity/withdrawal proceeds?

[ A ]If the premium payable for any year during the term of the policy exceeds Rs. 2.5 lakh[ CORRECT ]

[ B ]If the sum assured is at least 10 times the annual premium

[ C ]If the policy is held for less than 5 years

[ D ]If the ULIP invests more than 75% of the proceeds into equity

Takeaway

Option A is correct: per the Finance Act, 2021 amendment, no Section 10(10D) exemption is allowed on a ULIP issued on or after February 1, 2021, if the premium payable for any year during the policy term exceeds Rs. 2.5 lakh.

Derivation

The workbook explains that ULIP withdrawals/maturity proceeds are normally tax-free if the sum assured is at least 10 times the annual premium. However, the Finance Act, 2021 carved out an exception: for ULIPs issued on or after February 1, 2021, no exemption is available if the annual premium in any policy year exceeds Rs. 2.5 lakh; premiums below that threshold remain exempt. Candidates often confuse the general 10x sum-assured rule with this separate premium-threshold rule introduced later.

Why the others fail

B — If the sum assured is at least 10 times the annual premium

A sum assured of at least 10 times the annual premium is the condition that normally makes ULIP proceeds tax-free, not a condition that removes the exemption.

C — If the policy is held for less than 5 years

The 5-year period relates to the ULIP's compulsory contribution/liquidity lock-in and discontinuation charges, not to the Section 10(10D) exemption condition introduced by the Finance Act, 2021.

D — If the ULIP invests more than 75% of the proceeds into equity

The workbook does not link the Section 10(10D) exemption withdrawal to the ULIP's equity allocation percentage; the amendment is tied to the annual premium amount.