FEMA, LRS and foreign life insurance: what a resident can and cannot do

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

Indian exchange-control and tax law as at 20 October 2026. The FEMA (Insurance) Regulations, 2015 and the RBI Master Directions were read directly; practitioner views are marked as such.

PPLI.com is a research publisher. It is not an insurer, an insurance intermediary or a FEMA practitioner, it is not registered with IRDAI or SEBI, and it does not solicit or arrange insurance in India. Nothing on this page is advice on your own remittance or policy.

Can a resident Indian buy a foreign life insurance policy?

That is the whole page in one line. The rest explains where the line comes from, why the usual workarounds fail, and what the lawful alternatives look like. The tax consequences once a policy lawfully exists are on how India taxes a foreign life insurance policy.

Regulation 4 of the FEMA (Insurance) Regulations, 2015

The Foreign Exchange Management (Insurance) Regulations, 2015 were notified as FEMA 12(R)/2015-RB on 29 December 2015. Regulation 4 provides that a person resident in India may take or hold a life insurance policy issued by an insurer outside India only if the policy is held under the specific or general permission of the Reserve Bank. The RBI’s Master Direction No. 9/2015-16 on insurance (paragraph 2(d)) gives general permission for foreign-currency policies funded from an RFC account or foreign-currency funds abroad, but only for policies of IRDAI-registered insurers in India. A foreign insurer’s policy needs specific RBI approval. We have found no general permission for a resident to take a new foreign life policy, and practitioner analysis goes one step further: paying the premium on a policy from the NRI years out of resident Indian funds is itself a contravention.

Two further parts of regulation 4 matter. The proviso says that where the premium was paid by remittance from India, the policyholder must repatriate the maturity or claim proceeds to India through normal banking channels within seven days of receipt. And regulation 4(ii), the provision on which every NRI page of this edition turns: a person resident in India may hold any life insurance policy issued by an insurer outside India that was taken while that person was resident outside India. A policy bought as an NRI is lawful to keep after return, without permission. The LRS-linked general permission in regulation 3 is for health insurance, not life.

One more distinction is easy to miss. Residence under FEMA is not the same test as residence under the Income-tax Act. FEMA looks at whether you resided in India for more than 182 days in the preceding financial year and at your intention in coming or going; income tax looks at days in the current year and the surrender value.">Schedule FA is not required (section 6(6)).">RNOR history. A person can be resident for one law and not the other in the same year. The policy has to be taken while you are non-resident under FEMA, and the withdrawal planned while you are RNOR under income tax: see returning to India: the RNOR window.

Why LRS does not help, and what TCS would do if it did

Under the Liberalised Remittance Scheme a resident individual, minors included, may remit up to USD 2,50,000 per financial year (RBI Master Direction, updated to 6 September 2024). Permitted capital account uses include foreign currency accounts abroad, immovable property, overseas direct and portfolio investment, and loans to NRI relatives; current account uses include travel, gifts, emigration, maintenance of relatives, education, medical treatment and any other current account transaction. Neither the Master Direction nor the RBI’s FAQ lists insurance premium as a permitted purpose; we checked for the absence. At about ₹96 to the dollar, the limit is roughly ₹2.4 crore per person per year, when a PPLI policy’s meaningful scale begins at USD 2 to 5 million. Four family members together could not remit ₹10 crore in a year, and only for purposes that are on the list.

TCS: a cash-flow cost, not a tax

Even where an LRS remittance is lawful, section 206C(1G) of the 1961 Act (section 394(1) of the 2025 Act) collects tax at source. The Finance Act 2025 set the threshold at ₹10 lakh per financial year. According to the 2026 Budget speech, education and medical remittances above ₹10 lakh carry 2%, overseas tour packages 2%, and remittances for other purposes above ₹10 lakh remain at 20%; we have not read the enacted text of the Finance Act 2026, so treat the rates as reported. A foreign investment or an insurance premium is an other purpose: on the full USD 2,50,000, that is (₹2.4 crore less ₹10 lakh) at 20%, roughly ₹46 lakh held back by the bank in the same year. The amount appears in Form 26AS, a Form 27D certificate is issued, the credit is set against the final liability in the ITR and the balance refunded with interest under section 244A. TCS is therefore not a permanent cost, but ₹46 lakh sits outside the investment for months. An NRI paying from foreign earnings meets neither LRS nor TCS.

Three routes for a resident family

What none of the three does is turn a resident into someone who may hold a new foreign policy in their own name. The permission requirement stays with the resident.

What a contravention costs

A contravention of FEMA is a civil matter, not a criminal one, but it is not small. Section 13 of the Act allows a penalty of up to three times the sum involved where the amount is quantifiable, and the Enforcement Directorate can compound or adjudicate. A policy with a ₹20 crore premium paid without permission is a ₹20 crore contravention. The RBI’s compounding route exists for voluntary disclosure, and a FEMA practitioner should be in the room before any filing. Separately, the policy still has to appear in Schedule FA each year the owner is ordinarily resident, because the income-tax disclosure duty does not depend on whether the exchange-control step was done correctly; a policy missed in earlier returns can be regularised under FAST-DS 2026 until 31 December 2026, which settles the tax side and leaves the FEMA side where it was.

Sources and authorities

• FEMA 12(R)/2015-RB, Foreign Exchange Management (Insurance) Regulations, 2015: regulation 3 (health insurance, LRS limit), regulation 4 (life insurance, RBI permission, seven-day repatriation), regulation 4(ii) (policies taken while non-resident).
• RBI Master Direction, Insurance (No. 9/2015-16, updated 7 December 2021), paragraph 2(d): general permission for foreign-currency policies of Indian insurers funded from an RFC account or funds abroad.
• RBI Master Direction, Liberalised Remittance Scheme (updated 6 September 2024) and RBI LRS FAQ: USD 2,50,000 limit, permitted purposes, absence of insurance premium; RBI circular of 10 July 2024 on remittances to the IFSC.
• Foreign Exchange Management Act, 1999: section 2(v) (person resident in India), section 13 (penalties), section 15 (compounding).
• Section 206C(1G), Income-tax Act 1961 (section 394(1), Income-tax Act 2025): ₹10 lakh threshold from the Finance Act 2025; rates from section 394(1), Table item 7, of the 2025 Act (incometaxindia.gov.in).
• IFSCA insurance presentation, September 2025; LIC IFSC branch office; Cyril Amarchand Mangaldas, November 2024 (secondary).