Published on Feb 03, 2025
In the Union Budget 2025, Finance Minister Nirmala Sitharaman announced significant tax exemptions for Unit-Linked Insurance Plans (ULIPs) issued by insurance companies operating within the International Financial Services Centre (IFSC) at GIFT City. Maturity proceeds from these ULIPs will be tax-exempt, even if annual premiums exceed ₹2.5 lakh.
This exemption aims to provide parity for non-residents purchasing life insurance from IFSC-based insurers, aligning their tax treatment with policies from other foreign jurisdictions. The amendment to Section 10(10D) of the Income Tax Act removes the condition related to the maximum premium payable on such policies.
In contrast, for ULIPs issued by domestic insurers, maturity proceeds are taxable if the annual premiums exceed ₹2.5 lakh. The Budget clarifies that such ULIPs will be treated as capital assets, with gains taxed under capital gains tax provisions. Long-term capital gains (holding period of more than 12 months) exceeding ₹1.25 lakh are taxed at 12.5%, while short-term capital gains are taxed at 20%.
These measures are expected to boost the attractiveness of GIFT City as a hub for financial services and provide clarity on the taxation of ULIPs.
The objective of this exemption is to create a level playing field for non-resident individuals (NRIs & foreign investors) who purchase life insurance policies from insurance companies based in IFSC-GIFT City.
Key Reasons for the Exemption:
1️⃣ Parity with Foreign Jurisdictions – Ensures that tax treatment of life insurance policies issued in GIFT City matches those in other global financial centers.
2️⃣ Attracting Foreign Investors & NRIs – Encourages high-net-worth individuals (HNIs) and non-residents to invest in Indian insurance products via GIFT City rather than offshore markets.
3️⃣ Boosting IFSC-GIFT City as a Financial Hub – Strengthens GIFT City’s position as an international financial services center, making it a more attractive destination for insurance, banking, and investment services.
By removing the ₹2.5 lakh & ₹5 lakh premium cap on tax exemptions, this move makes IFSC-based insurance policies more competitive and tax-efficient, fostering greater investments in the sector.
