In the Union Budget 2025, Finance Minister Nirmala Sitharaman has announced complete tax exemptions on proceeds from life insurance policies issued by the insurance intermediary offices at the International Financial Services Centre (IFSC) in Gandhinagar's Gift City, Gujarat. Srinivas Balasubramanian, chief of product, ICICI Prudential Life Insurance, says, “Currently, the maturity proceeds from unit-linked policies where premium paid for the fiscal year exceeds ₹2.5 lakh and traditional policies where the premium exceeds ₹5 lakh are treated as taxable. “The proposed amendment in section 10(10D) of the Income Tax Act, 1961, has effectively removed this cap for policies issued from IFSCs by insurance companies.” Gaurav Makhijani, head of tax for North India and Gujarat, Roedl and Partner India, says: “This change will benefit non-residents who would otherwise be subject to tax in India on proceeds received from life insurance offices in IFSC, compared to sums received from foreign life insurance companies outside India. Thus, bringing in parity and making it more attractive.” However, policyholders should note the annual premium cannot exceed 10% of the sum assured. S. Sriram, Partner, Lakshmikumaran and Sridharan Attorneys, adds, “Section 10(10D) of the Income-tax Act, 1961, grants full tax exemption to proceeds from a life insurance policy. “The exemption would, however, not be available in three situations, “Firstly, when the annual premium payable is more than 10% of the sum assured in any policy, “Secondly, when the policy is a key man insurance policy, and “Thirdly, when a person’s total annual premium on traditional life insurance policies exceeds ₹5 lakh and unit-linked investment plans (ULIPs) ₹2.5 lakh. The provision applies equally to residents and non-resident policyholders. “It has now been proposed by the Finance Bill 2025 to exempt monies received under life insurance policies issued by the IFSC insurance intermediary office, even if the policy so issued does not meet the third condition. All other conditions are unaltered.” What is IFSC? It is a specialised financial hub that handles transactions for both residents and non-residents. A key requirement is that all transactions must be conducted in foreign currency, not Indian rupees. The IFSC operates under Section 2(q) of the Special Economic Zone Act, 2005. “IFSC is considered a special zone outside India, thereby exempt from stringent Indian exchange control regulations. However, from a tax perspective, it is treated as a domestic taxpayer. “To enhance its attractiveness, the government introduced tax incentives in this year’s budget, including an extension of the tax holiday sunset clause to March 31, 2030,” says Makhijani. Who benefits from amendment to section 10(10D) Sriram states, “Though the memorandum to the Finance Bill states the object is to provide parity to an insurance policy issued to non-residents, the text of the section, however, does not create any such distinction. The amendment, on a plain reading, would equally apply to non-resident and resident policyholders, subject to the resident policyholders being entitled to subscribe to the policy from IFSC.” Makhijani adds, “The language in the memo highlights intention of the change is to bring parity for NRIs. However, in the law, it appears the benefit will also be available for residents.” Sunset Clause Previously, different tax incentives for IFSC had varying expiry dates, ranging from March 31, 2024, to March 31, 2025, and March 31, 2026. The Finance Bill 2025 has changed this by extending all sunset dates. Now, IFSC units have until March 31, 2030, to commence their operations and avail themselves of these tax benefits. This extension applies to all tax concessions and fund relocation benefits related to IFSC operations. “The exemption is contemplated to come into effect in respect of monies received on or after 1st April 2025, and hence, would apply to policies issued in the past as well,” says Sriram. Benefits For Investors, For Insurers, Level-Playing Field For NRIs “NRIs buying policies from insurance offices in IFSCs would be able to enjoy tax-free maturity proceeds from the policies, subject to the sum assured is equal to or more than 10 times the annual premium payable. Thus, making long-term savings products for NRIs tax-efficient,” adds Balasubramanian. Ritika Nayyar, Partner, Singhania Co., says, “While the primary objective seems to bring the non-residents on a level-playing field, it does not seem to restrict the benefit of residents.” To boost dollar income for govt “It definitely attracts and may boost dollar income inflow, as well as help with the broader objective of developing IFSCs as international financial hubs,” Nayyar adds.Original Article