Insurance, a highly regulated sector
In India, like most countries around the world, insurance is a regulated sector and the reason for it is the risks associated with insurance products. Internationally, insurance products are offered by private wealth managers to help affluent families plan their estate, structure their wealth and meet inheritance tax liabilities, amongst other things. These insurance products, along with death coverage, sometimes also guarantee a fixed return.
Myth: Liberalised Remittance Scheme (LRS) allows buying of insurance products
For an Indian resident who is looking to invest in these products, it is important to be mindful of the applicable regulations.
While health insurance is permitted under LRS as long as the aggregate remittance is within the prescribed LRS thresholds, the Reserve Bank of India (RBI) does not permit Indian residents to take a life insurance policy from an overseas insurer without approval.
The only exception provided in case of a life insurance policy is if it is taken by a resident Indian when he/she was resident outside India – in such cases, the RBI allows for the policy to continue but in case any premium is remitted from India, RBI requires that the maturity proceeds be brought back into India within seven days.
It is a common myth that taking a life insurance policy from an overseas insurer would be permitted as long as the annual premium is within the threshold of USD 2,50,000 under the LRS.Pallavi Joshi Bakhru Partner and Private Client Services Leader,
Grant Thornton Bharat
Recent spate of ED notices
This brings us to the recent enquiries being undertaken by Indian regulators on the Jumbo life Insurance policies. In our view, it is likely that the regulators would want to understand the source of the monies used to buy these policies, disclosures made, and exposure created, if any. Where scrutiny establishes that things are in order, the RBI should ordinarily allow a window to regularise these transactions, provided proceeds are brought into the country.
The other aspect to be mindful of are the recent change in Indian tax laws, which brings within the ambit of taxation, any gain made on unit linked life insurance when the annual premium exceeds INR 250,000, unless the proceeds are received upon the death of the insured.
Seek professional guidance
There are complexities involved in hybrid products, especially when offered by overseas wealth managers/banks. Therefore, it is critical that one understands these product well and evaluates the Indian tax and regulatory implications before investing in them.