What penalty did Mr. Rao face for his ULIP income reporting?

Mr. Rao faced a penalty of Rs 2.48 crore for incorrectly reporting his Rs 3.22 crore ULIP surrender gains under the 'capital gains' head.

Why did ITAT Hyderabad cancel the Rs 2.48 crore penalty?

ITAT Hyderabad canceled the penalty, stating that a mere reporting error of income under the wrong head, without misrepresentation, does not constitute misreporting under Section 270A.

What is the difference between capital gains and income from other sources for ULIPs?

Capital gains typically arise from selling assets like stocks or property, while income from other sources is a broader category for income not fitting other heads, which ITAT Hyderabad deemed applicable here.

Home / Business and Economy / ULIP Gains Reclassified: Taxpayer Wins Appeal

ULIP Gains Reclassified: Taxpayer Wins Appeal

22 Dec

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Summary

A taxpayer's Rs 2.48 crore penalty was canceled by ITAT Hyderabad.
The penalty was due to reporting ULIP income under the wrong tax head.
ITAT ruled a reporting error does not constitute misreporting under law.

ULIP Gains Reclassified: Taxpayer Wins Appeal

ITAT Hyderabad recently ruled in favor of a non-resident individual, canceling a substantial Rs 2.48 crore penalty. The penalty was levied because the taxpayer had mistakenly reported Rs 3.22 crore in income from surrendered ULIPs under the 'capital gains' head, rather than the correct 'income from other sources' head.

The tribunal emphasized that fully disclosing income and merely making an error in classification does not equate to misreporting under Section 270A of the Income Tax Act. This decision stems from a case where an individual invested Rs 75 lakh in ULIPs, surrendered them for Rs 3.22 crore, and faced penalties for the reporting oversight.

This judgment, delivered on November 19, 2025, provides significant relief, confirming that a bona fide mistake in categorizing income does not justify penalties if all facts were truthfully disclosed. The ruling follows judicial precedents that distinguish between genuine reporting errors and deliberate concealment.