PPLI vs ULIP: where the ₹2.5 lakh limit leaves a ₹10 crore family

By Eldar Edmond Grady, CEO, PPLI.com. Research checked 20 October 2026.हिन्दी में पढ़ें

Indian law as at 20 October 2026, Financial Year 2026-27, for an individual who owns the policy personally. Section numbers follow the Income-tax Act 1961 unless stated; the Income-tax Act 2025 applies from 1 April 2026 and renumbers them.

PPLI.com is a research publisher. It is not an insurer, an insurance intermediary or an investment adviser, it is not registered with IRDAI or SEBI, and it does not solicit or arrange insurance in India. Nothing on this page is an offer of insurance or a recommendation of any product.

Three names, three different things

A ULIP is a product category. An Indian life insurer sells it under IRDAI rules; after charges, the premium goes into funds the insurer runs, and the investment risk sits with you. You can switch between funds, but only among the funds that insurer built. It is a retail product with a retail price: fund management charges, policy administration charges, mortality charges and, for the first five years, surrender charges.

PPLI is a market name, not a legal category in India or anywhere else. It describes a life policy written for one family, usually for a single premium that insurers in practice set at USD 2 to 5 million (roughly ₹19 to 48 crore at ₹96 to the dollar), issued by an insurer in Singapore, Luxembourg, Ireland or Bermuda. The policy’s value follows a separately managed account; the family chooses the strategy and the manager within the insurer’s approved list, and the insurer supplies the contract. ULIP is its distant retail cousin: the same idea, without the scale, the choice of manager or the offshore insurer. The structure is explained on PPLI under Indian law.

GIFT City is a place and a regulatory frame. An IFSC Insurance Office there, licensed by IFSCA, may issue policies in foreign currency. LIC’s IFSC office markets a USD policy called Wealth Builder Plus, HDFC Life International and Tata AIA sell through branches there, and in July 2026 Policybazaar began offering dollar term plans from partner insurers. Not every GIFT City policy is a PPLI, and the ULIP tax rules do not apply to it automatically. It is a third route with its own rules, covered on GIFT City life insurance.

Money locked for five years, and tax exemption that stops at ₹2.5 lakh

The first limit is liquidity. IRDAI raised the ULIP lock-in from three years to five, and a policy discontinued inside that period moves into a discontinued fund with capped charges. The second limit is tax, and for a family with real money it is the one that decides. The fourth proviso to section 10(10D), inserted by the Finance Act 2021, says that for a ULIP issued on or after 1 February 2021, if the premium payable in any year exceeds ₹2,50,000, the maturity or surrender proceeds are not exempt. If you hold several ULIPs, the limit applies to the aggregate premium. A death benefit is untouched. Non-ULIP policies have a separate ₹5 lakh ceiling from 1 April 2023.

What happens above the limit was written down by the Finance Act 2025 memorandum: such a ULIP is a capital asset, gains on redemption are capital gains, and an equity-oriented ULIP sits inside the definition of an equity-oriented fund, so long-term gains above ₹1.25 lakh are taxed at 12.5%. From 1 April 2026 the Income-tax Act 2025 renumbers the provisions; ask your CA for the new section before you file.

The arithmetic at ₹3 lakh a year

An illustration, not a product. A resident takes a ULIP in 2026 and pays ₹3,00,000 a year for ten years, ₹30 lakh in all. The fund is worth ₹48 lakh after the tenth year. The premium was above ₹2.5 lakh, so the ₹18 lakh gain is outside the exemption. If the fund is equity-oriented, held over a year, and there are no other long-term equity gains that year, the tax is roughly (₹18,00,000 less ₹1,25,000) at 12.5%, about ₹2,09,375, plus surcharge and cess. Had the premium been kept at ₹2.5 lakh, the maturity could have stayed exempt, subject to the other conditions of section 10(10D).

Put that on the Delhi family’s scale. Dividing ₹10 crore by the ₹2.5 lakh ceiling gives 400: four hundred years to place ₹10 crore inside tax-exempt ULIPs. Everything above the ceiling is taxed much like a mutual fund, with insurance charges on top. That is why Moneycontrol headlines ask what HNIs who bought ULIPs for tax must do now, and why the honest answer for most of them is a term plan plus mutual funds, not a bigger ULIP.

For a resident, the first barrier to PPLI is FEMA, not tax

PPLI is bought for scale and breadth: a separately managed account, a manager of the family’s choosing approved by the insurer, and a succession arrangement that works across several countries. But if you are resident in India, the tax discussion comes later. Regulation 4 of the Foreign Exchange Management (Insurance) Regulations, 2015 says a person resident in India may take or hold a life policy from an insurer outside India only under the general or specific permission of the Reserve Bank. The RBI’s Master Direction on the Liberalised Remittance Scheme, updated to 6 September 2024, lists the permitted purposes, and life insurance premium is not among them. So when someone says “just remit the PPLI premium under LRS”, the question to ask is: where is the permission? The detail is on FEMA, LRS and foreign life insurance.

If a member of the family lives abroad, or you are an NRI yourself and plan to return, the picture changes. Regulation 4(ii) lets a person keep a policy taken while resident outside India. The timing of that is the subject of returning to India: the RNOR window.

Tax does not make PPLI magic either. A policy of this size always crosses the ₹5 lakh premium ceiling, so an Indian resident gets no exemption on surrender or maturity, and the gain is taxed on receipt at slab rate as income from other sources under section 56(2)(xiii), not at the 12.5% long-term rate. On a buy-and-hold equity portfolio the policy therefore loses: it turns a 12.5% rate into roughly 39% after surcharge and cess. What it offers a resident is deferral, a tax-free death benefit under the eighth proviso to section 10(10D), and the succession mechanics of a single contract. The figures are worked through on how India taxes a foreign life insurance policy.

Assumptions: 6% gross return; new-regime slab 30% plus 25% surcharge plus 4% cess, about 39%; LTCG 12.5% under section 112(1)(a); policy cost 0.60% a year as a working figure, not a verified quote. The policy’s case rests on slab-taxed income, a long horizon, the death benefit and succession, not on equity gains.

GIFT City’s dollar policy: what is settled and what is not

The tax point is the clearest. The Finance Act 2025 memorandum provides that, from 1 April 2025, proceeds of a life policy issued by an IFSC insurance intermediary office are exempt under section 10(10D) without the maximum-premium condition. The ₹2.5 lakh and ₹5 lakh ceilings do not bite there. The memorandum gives the reason: to put non-residents who buy insurance from the IFSC on a par with other foreign jurisdictions. The other conditions of section 10(10D), and the equivalent provision in the new Act, still have to be checked.

The regulator’s position is also in writing. IFSCA’s official presentation of September 2025 states that resident Indians may take life and health insurance from IIOs under LRS, and LIC’s IFSC page lists resident Indians through LRS among its customers. The RBI’s LRS Master Direction permits remittances to the IFSC for financial services and products under the IFSCA Act 2019, but within the permissible purposes of LRS. That is where the difficulty starts: we have found no RBI circular, and no amendment to the FEMA Insurance Regulations, that lifts the regulation 4 permission requirement for life policies from an IIO. Cyril Amarchand Mangaldas wrote in November 2024 that a clarification and an amendment would be needed if the RBI intended residents to buy dollar life policies from GIFT City without prior approval. Before any premium leaves your account, have the bank confirm the purpose code in writing. The checklist is on GIFT City life insurance.

A dollar policy also means planning in dollars. If the children’s education will be abroad, a USD benefit matches the expense. If the family’s spending is in rupees, the rupee value of the policy moves with the exchange rate, and that risk should appear separately on any projection you are shown.

The three routes compared

Seven questions to settle first

1. Is the policyholder resident or non-resident under both income tax and FEMA, and will that change in the next five years?
2. Which legal entity issues the policy, and who regulates it?
3. From which account, and under which purpose code, will the premium go? Has the bank accepted that in writing?
4. In which currency are the family’s future expenses?
5. Is the annual premium inside or outside the exemption ceiling? If outside, who has written down the tax computation?
6. What is the total cost of surrendering at five, ten and twenty years?
7. On death, who receives the money, in which currency, and with which documents?

Write the cost in rupees. If two proposals of similar risk differ by 0.40 percentage points a year in total cost, on ₹10 crore that is ₹4 lakh a year. The 0.40 figure is only there to show the method; it is not taken from any product. How to separate the charges is set out under what a policy costs.

PPLI is not the answer for every family. If you are resident in India and no permission route exists, the conversation ends there. If the investable sum is not large enough for the fixed charges to disappear into it, it ends there too. If the money may be needed within a few years, likewise. And if the need is only death cover, plain term insurance is cheaper and simpler. For such a family a ULIP inside ₹2.5 lakh, mutual funds and a term plan is usually enough.

Sources and authorities

• IRDAI consumer portal: unit linked products (five-year lock-in, discontinuance).
• Income-tax Act 1961, section 10, clause (10D), fourth to eighth provisos; section 56(2)(xiii); section 112(1)(a).
• Memorandum explaining the provisions of the Finance Bill, 2025: ULIPs above the ceiling as equity-oriented funds; IFSC policies without the premium cap.
• RBI Master Direction, Insurance and FEMA 12(R)/2015-RB, regulation 4.
• RBI Master Direction, Liberalised Remittance Scheme (updated 6 September 2024).
• IFSCA insurance presentation, September 2025; LIC IFSC branch office.
• Cyril Amarchand Mangaldas: GIFT-IFSC and LRS, insurance products for resident Indians (November 2024) (secondary).
• Business Today, 27 July 2026: Policybazaar dollar term insurance via GIFT City (press).