NRI Dubai life policy: Why ITAT allowed tax exemption

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) held that the maturity proceeds of the foreign life insurance policy could not be treated as undisclosed foreign income under the Black Money Act just because the policy was issued by a foreign insurer.

The order, passed on July 31, 2026, relates to Assessment Year 2017-18 and arose from a dispute involving a life insurance policy purchased by the taxpayer while he was working in Dubai.

Why did the Income Tax Department treat the foreign life insurance proceeds as undisclosed income?

Sarvesh Naidu worked in Dubai from 2001 to 2007, during which he purchased a life insurance policy from an Isle of Man-based insurer, then known as Scottish Life International and later RL360. The policy was purchased jointly with his wife, Pathmarani Kanagarayar, in March 2005, at an annual premium of USD 8,898. He initially paid the premiums from the salary he earned in Dubai, which was not taxed in India at that time.

After returning to India in 2007 and joining Pathways World School, Gurugram, he continued paying the policy premiums from his taxable Indian salary. The Tribunal noted that after returning to India, he paid the subsequent premiums through his Indian bank accounts, initially Citi Bank and later HDFC Bank, in accordance with foreign-exchange rules. He also did not maintain an overseas bank account after returning to India.

The policy matured in 2015, and Naidu received USD 52,896.76 (roughly ₹35–40 lakh) in his HDFC Bank account in 2016. The taxpayer did not report the maturity proceeds as taxable income in his return because he claimed the amount was exempt under Section 10(10D) of the Income-tax Act.

The Assessing Officer, however, disagreed. “The tax authority argued that Section 10(10D)'s exemption for life insurance maturity proceeds only applies where the insurer is an Indian insurance company, reading in a definition from a different section of the Act (Section 2(28BB)), and, since the insurer was foreign, treated the entire amount as an undisclosed foreign asset under the Black Money Act,” says CA Sidhant Agarwal, founder, India For NRI.

The taxpayer argued that the insurance premiums came from disclosed and explainable sources

The tax tribunal found that the sources of the premium payments had been explained and supported by relevant details.

The initial premiums had been paid from his Dubai salary while he was a non-resident and that income was not chargeable to tax in India. After he returned to India, subsequent premiums were paid from his taxable salary on which tax had been paid.

The taxpayer also relied on CBDT Circular No. 13 of 2015 dated July 6, 2015, which clarified the tax compliance requirements for undisclosed foreign income and assets under the Black Money Act.

In Question No. 18, the CBDT was asked:

“A person holds certain foreign assets which are fully explained and acquired out of tax-paid income. However, he has not reported such assets in Schedule FA of the Income Tax Return in the past. Should he declare such assets under Chapter VI of the Act?”

The CBDT clarified that since such assets were fully explained, they would not be treated as undisclosed foreign assets and would not have to be declared under Chapter VI of the Act.

Similarly, in Question No. 32, the CBDT clarified that if a person acquired a foreign asset while he was a non-resident using income that was not chargeable to tax in India, such an asset would not be considered an undisclosed foreign asset under the Black Money Act.

However, if income was accrued or received in India while he was non-resident, such income is chargeable to tax in India. If such income was not disclosed in the return of income and the foreign asset was acquired from such income, then the asset becomes an undisclosed foreign asset, and the person may declare such asset under Chapter VI of the Act.

Why did the Delhi ITAT rule in the taxpayer's favour?

According to Agarwal, the Tribunal's decision essentially hinged on two separate issues.

Section 10(10D) itself contains no requirement that the insurer be Indian; the word "insurer" doesn't even appear in that Section, and a definition from elsewhere in the Act cannot be imported into a provision that doesn't reference it.

The tax tribunal relied on the Supreme Court's 2001 ruling in Oxford University Press v. CIT, which established the same principle in a different context.

On the Black Money Act point, the Tribunal held that assets bought with money that was never taxable in India in the first place, because it was earned while genuinely non-resident, don't qualify as "undisclosed foreign assets" under the Act, provided the source is properly explained. It pointed to the CBDT's own 2015 FAQ circular (Circular No. 13 of 2015), which says exactly this.

The appeal was allowed in full; the addition was struck down.

What does the ruling mean for NRIs and returning NRIs?

The ruling is particularly relevant for NRIs and returning NRIs who have bought life insurance or other financial assets abroad while they were non-residents.

While the tax tribunal ruled in favour of the taxpayer, the case also highlights the importance of maintaining proper records and understanding the disclosure requirements that apply after returning to India.

“Returning NRIs should maintain a comprehensive list of foreign assets including shares, securities, bank accounts, insurance policy, etc. Further, to the extent possible they should preserve documentation of source of funds to establish the trail of funds for every foreign asset,” says Shabnam Shaikh, Partner at Khaitan & Co.

“Once becoming an ordinary resident of India, the returning NRI should disclose their foreign assets in Schedule FA of the income-tax return – while the CBDT circular clarifies that assets acquired from income not chargeable to tax are not ‘undisclosed foreign asset’ under the Black Money Act, the failure to report them in Schedule FA can nonetheless invite scrutiny and expensive litigation which could be avoidable,” she adds.

The case highlights a practical issue that can arise when NRIs return to India after accumulating financial assets abroad.

“This is a recurring, high-stakes fact pattern – NRIs who bought foreign insurance, pension, or investment products while genuinely non-resident, using money never taxable in India, then returned home without realizing (or being told) those legacy foreign assets needed disclosure once they became resident,” says Agarwal.

The ruling reinforces two protections that matter well beyond this one case: foreign-insurer maturity proceeds aren't automatically excluded from Section 10(10D) just for being foreign, and money that was clean and non-taxable when earned abroad doesn't retroactively become "undisclosed" merely for not appearing in a Schedule FA filing at the time, he adds.