New Delhi, Feb. 1 -- Budget 2025 has brought significant clarity to the taxation of unit-linked insurance policies (ULIPs), resolving years of ambiguity that left investors and tax professionals uncertain about how profits from these policies would be taxed.

Issuing a clarification on income on redemption of ULIPs, finance minister Nirmala Sitharaman on Saturday announced that ULIPs that do not qualify for the exemption under clause (10D) of section 10 will be treated as a capital asset.

In other words, short-term capital gains (STCG) from ULIPs will be taxed at 20%, and long-term capital gains (LTCG)-for investments held for over 12 months-will be taxed at 12.5%. Furthermore, profits exceeding Rs.1.25 lakh will be exempt from tax.

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