Unlimited tax exemption on ULIP returns for non residents if it is bought from this intermediary office: Budget 2025
Budget 2025 has given significant tax relief to Non-Residents (NRs) who may wish to purchase any insurance policy including ULIPs from a company registered in the IFSC region. Now all insurance policies purchased from an IFSC registered office of the insurer will get section 10(10D) tax exemption irrespective of the fact its premium payable is more than Rs 2.5 lakh for ULIPs and Rs 5 lakh for others. This amendment is applicable from April 1, 2025.#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;}
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Although it may look like a total tax exemption, but there is a catch which is that the Finance Minister has inserted a limitation clause without which this tax exemption for insurance policies bought from the IFSC region won’t be given.
IFSC which stands for International Financial Services Centre (IFSC) is presently situated in Gandhinagar, Gujarat. Companies which set up their registered office in this region get tax and other benefits.
Benefit given to insurance policy buyers from IFSC region in Budget 2025
The Income Tax Department in its frequently asked question about Budget 2025 said: “Clause (10D) of section 10 is proposed to be amended so as to provide that proceed received on life insurance policy, issued by insurance intermediary office located in IFSC, shall be exempted without any condition on premium amount (i.e. Rs 2,50,000 for ULIPs and Rs 5,00,000 for other policies). However, the premium payable for any of the year during the term of policy should not be more than 10 percent of the actual capital sum assured.”The limitation clause as can be seen from the above proposal by the Finance Minister is on the basis of the percentage of the insurance premium paid for such a policy. If the annual premium payable for this policy is more than 10% of the actual capital sum assured, then this tax exemption will not be given for IFSC bought insurance policies including ULIPs.
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Here’s a table explaining it:
Policy typePremium per yearActual capital sum assuredSection 10 (10D) tax exemptionULIPRs 30 lakhRs 2 lakhYesOther insurance policiesRs 60 lakhRs 5 lakhYesULIPRs 30 lakhRs 4 lakhNoOther insurance policiesRs 60 lakhRs 8 lakhNo
Experts say this enhancement of the tax exemption criteria under section 10(10D) specifically for policies issued from the IFSC region aims to bolster the attractiveness of IFSC as a center for financial services.
Sonal Alagh, Partner, Alagh & Kapoor Law Offices, says, “The significant aspect of this amendment is the removal of the cap on premium amounts which were previously set at Rs 2,50,000 for ULIPs and Rs 5,00,000 for other life insurance policies to qualify for tax exemption. Now, the only condition is that the premium for any year during the term of the policy should not exceed 10 percent of the sum assured.
Chartered Accountant Prakash Hegde says, "NRIs are allowed to purchase life insurance policies and Unit Linked Insurance Policies from an Insurance Intermediary Office located in IFSC and they can get benefit from the above tax exemption."
Hegde adds: The Indian Government has set up IFSC to undertake financial services transactions that are carried on outside India by overseas financial institutions and overseas branches/ subsidiaries of Indian financial institutions. IFSC as envisaged under the Indian context “is a jurisdiction that provides financial services to non-residents and residents (Institutions), in foreign currency other than Indian Rupee (INR). To encourage IFSC, the Indian Government has implemented many regulations and also provided many tax exemptions to units in the IFSC and the investors."
Explanatory memorandum to Budget 2025 said this about IFSC insurance policies
The explanatory memorandum to Budget 2025 said: “In order to provide parity to non-residents availing life insurance from insurance office in IFSC vis a vis other foreign jurisdiction, it is proposed to amend the clause (10D) of section 10 so as to provide that proceeds received on life insurance policy issued by IFSC insurance intermediary office shall be exempted without the condition related to the maximum premium payable on such policy as mentioned above.”
As seen from the explanatory memorandum to Budget 2025, experts say the above income tax exemption is directed only towards non-residents and not Indian residents.
Pranjita Barman, Partner, Cyril Amarchand Mangaldas, says, “While the proposed amendments to the Income Tax Act do not clarify whether it will be applicable to residents, non-residents or both, the memorandum to the speech of the finance minister indicates that such an amendment was introduced to ensure parity for non-residents vis-à-vis other offshore jurisdictions. Accordingly, the intent seems to limit the exemptions to non-residents.”
For Indian residents, Budget 2025 has clarified that if a ULIP or other insurance policy do not satisfy Section 10 (10D) provisions about maximum premium paid being Rs 2.5 lakh (ULIP), Rs 5 lakh (others) and premium amount limited to 10% of the sum assured, then it will be taxed as capital gains. Read more about it here.
Barman adds: “The memorandum to the budget speech provides that all life insurance policies issued by an IFSC insurance office to non-residents will be free of Section 10 (10D) exemption conditions such has premium limits. It includes all life insurance policies including ULIPs and endowments. Proceeds received out of health insurance policies are never treated as income since they are in the form of reimbursement of expenses incurred and therefore are anyway not taxable, within or outside IFSC.”
"As a continuation of the tax exemptions, in the Finance Bill presented on 01 February 2025, it has been proposed to allow exemption for gains from ULIPs even if the total premium for the whole year exceeds Rs 2,50,000 and for gains from other life insurance policies (other than ULIPs) even if the total premiums for the whole year exceeds Rs 5,00,000 in case such policies are issued by the IFSC insurance intermediary office. [However, such gains will continue be taxable if the limit on premium i.e. 10% of sum assured, is not adhered to]," says Hegde.
Who is eligible to register as an IFSC insurance intermediary office?
According to a FAQ by IFSC the following entities are eligible:An intermediary or insurance intermediary registered with the Insurance Regulatory and Development Authority of India (IRDAI); A foreign insurance intermediary registered with home country regulatory or supervisory authority; An Indian company incorporated under the Companies Act, 2013, or a firm or a co-operative society; or A body corporate incorporated under the laws of any country outside India. #sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;}
This story originally appeared on: India Times - Author:Faqs of Insurances
