For an NRI living in the UAE, a ULIP maturity payout can still be taxable in India. The UAE won’t tax it, but India will if the policy fails either of two premium tests, and insurers usually deduct tax from a non-resident’s payout before paying it. Whether you owe anything depends on those tests, your residential status and possibly the India-UAE tax treaty.
Why India Can Still Tax the Payout
The UAE doesn’t levy personal income tax, so it won’t tax your maturity payout. India, however, taxes non-residents on income that arises in India, and a payout from an Indian insurer does.
A ULIP plan for NRIs in the UAE is still an Indian life insurance contract, so living in Dubai or Abu Dhabi doesn’t change where the income comes from. Whether you owe anything depends first on two tests in Indian law.
The Two Tests for Tax-Free Maturity
For the tax year starting April 1, 2026, maturity proceeds are tax-free under Section 11 read with Schedule II of the Income-tax Act, 2025 (formerly Section 10(10D)) only if the policy passes both of these tests.
First, the premium in any year must stay within 10% of the sum assured, or 20% for policies issued between April 2003 and March 2012.
Second, for ULIPs issued on or after February 1, 2021, the total annual premium across all such ULIPs must stay within ₹2.5 lakh in every year. Older ULIPs aren’t subject to this cap. Death benefits remain tax-free regardless of these tests.
Can the India-UAE Treaty Help?
A tax treaty also decides which country can tax a particular gain. Under Article 13(5) of the India-UAE Double Taxation Avoidance Agreement (DTAA), gains from property other than immovable property, business assets and shares are taxable only in the country where the seller is resident. Practitioners often rely on this to argue that a taxable ULIP gain can be taxed only in the UAE, which has no income tax. However, it isn’t settled whether a maturity payout counts as an “alienation” (a sale or transfer) under that article, so get cross-border advice before relying on it.
Any treaty claim needs paperwork before the payout. Get a Tax Residency Certificate from the UAE’s Federal Tax Authority, which issues it based on criteria such as 183 days in the country, or 90 days with UAE employment or a permanent home there. File Form 10F online on India’s income tax portal if the certificate is missing any required details, and send both documents to the insurer before the maturity date.
When the Gain Is Taxable
Since the Finance Act, 2025, a ULIP that fails either test is treated as a capital asset, so the gain (broadly, the maturity value minus premiums paid) is taxed as capital gains. For an equity-oriented ULIP, long-term gains are taxed at 12.5% above ₹1.25 lakh a year, and short-term gains at 20%. Debt-oriented funds follow different rules, so check your fund mix.
Take an illustrative case. You bought a five-year ULIP in early 2022 and paid ₹3 lakh a year, ₹15 lakh in total, and it matures at ₹22 lakh. Because ₹3 lakh is above the ₹2.5 lakh cap, the policy fails the second test. Assuming for simplicity that the full ₹7 lakh gain is long-term, ₹5.75 lakh is taxable after the ₹1.25 lakh exemption, which comes to about ₹72,000 before surcharge and cess. If the premium had been ₹2.5 lakh a year, the maturity would have been tax-free, provided the policy also passed the 10% test.
Tax Deducted from the Payout
For resident policyholders, insurers deduct TDS of 2% on the income portion of a taxable payout. For non-residents, insurers generally deduct tax at non-resident rates on the gain, so the amount can be much higher, and it’s taken before you’ve filed a return.
You can reduce this in advance. Well before maturity, apply for a lower or nil deduction certificate under Section 395(1) of the Income-tax Act, 2025 (formerly Section 197), using Form No. 128 (formerly Form 13). You can claim back any tax that’s still over-deducted in your Indian return, which is also where you report the gain.
How Deemed Residency Can Change Things
Living in a country with no income tax brings one more Indian rule into play. An Indian citizen whose total income, excluding foreign income, is above ₹15 lakh, and who isn’t liable to tax in any other country, can be treated as a deemed resident of India (formerly Section 6(1A)). A deemed resident is taxed as resident but not ordinarily resident, so UAE salary generally stays outside Indian tax.
This status matters for your ULIP. As a resident, you would file as one, and the insurer should apply the 2% resident rate rather than non-resident rates, but the treaty claim above may be harder to make. Moving back to India before maturity has the same effect.
What to Check Before Maturity
Run your policies through both tests, adding up annual premiums across every ULIP issued on or after February 1, 2021, not just the one that’s maturing. Then confirm your residential status for the year, and arrange the Tax Residency Certificate, Form 10F and any lower deduction application before the payout date.
If your policy fails either test, expect the insurer to deduct tax. Doing these checks now tells you, before the money arrives, whether you’ll receive the full amount or a reduced one.