Budget: NRIs gain tax relief on Gift City investments

NRIs to benefit from tax-free maturity proceeds on Gift City Ulips and endowment plans

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The Union Budget for 2025-26 has proposed a major tax arbitrage for unitlinked insurance policies and endowment plans sold T via Gift City. If approved, the maturity proceeds in such dollar-denominated insurance plans will be tax-free if the premium amount is under 10% of the sum assured.

Currently, maturity proceeds in Gift City-linked Ulips and endowment plans are taxable if the annual premium is above Rs 2.5 lakh and Rs 5 lakh, respectively. That will change once the Budget proposal is cleared in Parliament.

Gift City is a foreign jurisdiction for tax purposes and is regulated by the International Financial Services Centres Authority (IFSCA).

"In order to provide parity to nonresidents 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," reads the memorandum explaining Budget 2025's provisions.

This is expected to encourage wealthy non-resident Indians (NRIs) to invest in dollar-denominated insurance-cum-investment products for taxefficiency, according to industry experts and executives.

The government does not want to tax NRIs for investments in Gift City, which otherwise could have been made in tax havens, said chartered accountant Gautam Nayak.

A budget boost

As many as six life insurance companies have a presence at Gift City, the IFSCA website shows, but not all of them have launched products yet.

IndiaFirst Life Insurance, which commenced operations in Gift City in August last year, has a Ulip product called IndiaFirst Life Wealth Wise plan.