How NRIs Are Taxed on Maturity Payouts from Insurance Plans?

Understanding how maturity payouts from a life insurance policy are taxed is an important part of NRI taxation. While life insurance offers long-term financial security, the tax treatment of maturity benefits depends on the specific rules under the Income Tax Act, the type of policy held, and the policyholder's residency status. This guide explains how NRI taxation applies to maturity payouts from Indian life insurance products and what NRIs should consider when planning their financial commitments.

When Are Maturity Payouts Tax-Free for NRIs?

Under Section 10(10D) of the Income Tax Act, maturity proceeds from a life insurance policy are exempt from tax if the policy meets the conditions outlined in the legislation. These conditions include premium-to-sum-assured limits that differ by policy type.

When a policy satisfies these criteria, the entire maturity amount is exempt from tax for NRIs. This is one reason why many individuals prefer to invest through reputed life insurance providers like Aviva Life Insurance, which structure products in line with regulatory guidelines and long-term financial planning needs.

Payouts made upon the death of the life assured remain tax-free in most cases, even if the premium exceeds the usual threshold. This benefit allows nominees to receive the full value of the policy without tax deductions.

When Do Maturity Payouts Become Taxable?

If a life insurance policy does not meet the exemption requirements of Section 10(10D), the maturity proceeds are treated as taxable under the head Income from Other Sources.

Under NRI taxation:

● The maturity amount becomes fully taxable

● The NRI is taxed at the applicable slab rate.

● Tax may be deducted at source (TDS) by the insurer.

NRIs should retain necessary documents, including TDS certificates, to support return filing and, where applicable, refund claims.

What Changed in 2025 for IFSC-Issued Life Insurance Policies?

The Finance Act 2025 introduced an important update for NRIs purchasing a life insurance policy through insurers located in an International Financial Services Centre (IFSC).

From 1 April 2025, maturity proceeds from IFSC-issued life insurance policies qualify for exemption even if the premium-to-sum-assured ratio exceeds the limits that usually apply to domestic policies. This change increases the tax efficiency of such policies and broadens the planning opportunities available to NRIs.

For Example

Ravi, an NRI residing in Dubai, purchased a life insurance policy in India in 2015 with a sum assured of ₹50 lakh and an annual premium of ₹4 lakh. Since the premium falls within the exemption limits for his policy type, the maturity payout is likely to qualify for exemption under NRI taxation rules.

If the annual premium had been ₹6 lakh and exceeded the applicable threshold, the maturity proceeds could have become taxable. However, if Ravi were to purchase a similar policy from an IFSC-based insurer after 1 April 2025, the maturity payout would be exempt even if the premium were above the usual limit, due to the revised rules.

DTAA Relief for NRIs on Maturity Payouts

NRIs may be able to reduce their tax liability through the applicable Double Taxation Avoidance Agreement (DTAA) if a maturity payout becomes taxable in India.

To claim DTAA benefits, individuals generally require:

● A valid Tax Residency Certificate (TRC)

● Form 10F

● Proof of tax paid abroad, if relevant

The specific DTAA determines whether the individual receives a tax credit or an exemption.

Filing Returns for Taxable Maturity Payouts

If a maturity payout from a life insurance policy is taxable, NRIs must report it in their Indian income tax return. Most NRIs with this type of income file ITR-2, although the appropriate form depends on the individual’s broader income profile in India.

Accurate documentation helps process refunds and apply the relevant NRI taxation provisions correctly.

Final Thoughts

For NRIs, understanding how NRI taxation applies to the maturity proceeds of a life insurance policy is a key part of sound financial planning. Whether the policy qualifies for exemption, whether it is issued in India or through an IFSC, and whether DTAA provisions can reduce the tax impact all influence the amount ultimately received. By working with reputed life insurance providers like Aviva Life Insurance and maintaining clear records, NRIs can make well-informed financial decisions and manage their long-term commitments more effectively.

(The views, opinions, and claims in this article are solely those of the author’s and do not represent the editorial stance of The Assam Tribune)