Draft Income Tax Rule 49 – Computation of capital gains for the purposes of section 67(5)

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Rule 49 of the Draft Income-tax Rules, 2026 lays down the mechanism for computing capital gains under Section 67(5) where amounts are received from a specified unit-linked insurance policy (ULIP), including bonuses. For the first receipt during a tax year, capital gains are calculated as the amount received (including bonus) minus the aggregate premium paid up to the date of receipt. For subsequent receipts, capital gains are computed as the amount received during the year (excluding amounts already taxed earlier) minus the aggregate premium paid up to that date, reduced by premiums previously considered for taxation. This ensures that premiums are proportionately adjusted to avoid double deduction. Importantly, such capital gains are deemed to arise from transfer of a unit of an equity-oriented fund established by an insurance company offering ULIPs, thereby aligning their tax treatment with equity mutual funds. The term “specified unit linked insurance policy” refers to policies covered under Section 2(22)(c) of the Act. The rule provides clarity on staged withdrawals and ensures systematic taxation of ULIP proceeds.

Extract of Rule No. 37 of Draft Income-tax Rules, 2026

Rule 49

Computation of capital gains for the purposes of section 67(5)

If a person receives any amount under a specified unit-linked insurance policy, including any bonus allocated on such policy, then capital gains arising from receipt of such amount in situations referred in Column B of the Table below shall be computed according to Column (C) thereof.

TABLE

Sl.No	Situations	Capital gains
(A)	(B)	(C)
1.	where the amount is received for the first time during the tax year	A-Bwhere,A=the amount received for the first time, including the amount allocated by way of bonus on such policy; andB=the aggregate of the premium paid during the term of the specified unit linked insurance policy till the date of receipt of the amount as referred as ‘A’.
2.	where the amount is received during the tax year, at any time after the receipt of the amount as referred to in Sl.no.1	C-Dwhere, —C=the amount received during the tax year, at any time after the receipt of the amount as referred to in Sl.no.1, including the amount allocated by way of bonus on such policy excluding the amount that has already been considered for calculation of taxable amount under this sub-rule during the earlier tax year or years; andD =the aggregate of the premium paid during the term of the specified unit linked insurance policy till the date of receipt of the amount referred to as ‘C’ as reduced by the premium that has already been considered for calculation of taxable amount under this sub-rule during the earlier tax year or years.

(2) The capital gains as computed under sub-rule (1) shall be deemed to be the capital gains arising from the transfer of a unit of an equity-oriented fund set up under a scheme of an insurance company that includes unit linked insurance policies.

(3) In this rule, the expression “specified unit linked insurance policy” shall mean any unit linked insurance policy referred to in section 2(22)(c) of the Act.