Life insurance maturity proceeds in India are generally exempt from tax under Section 10(10D), and NRIs are entitled to that exemption on the same terms as resident policyholders -- there's no separate, harsher rule just for non-residents. The exemption itself, however, changed materially for policies issued on or after 1 April 2023.
The high-premium carve-out
The Finance Act 2023 withdrew the Section 10(10D) exemption for traditional (non-ULIP) life insurance policies issued on or after 1 April 2023 where the annual premium exceeds Rs 5 lakh (aggregated across all such policies held by the same person), and for ULIPs specifically, the threshold is a lower Rs 2.5 lakh in aggregate annual premium. Cross either threshold and maturity proceeds on the affected policy become taxable, generally as capital gains rather than fully exempt income.
The death benefit exception is unaffected by any of this: proceeds paid out on the death of the insured remain fully exempt under Section 10(10D) regardless of premium size. The change targets maturity and surrender proceeds on high-premium policies specifically, not death claims.
What NRIs should check
Because the threshold is aggregated across all policies of the relevant type held by one person, an NRI who holds several policies purchased over the years -- possibly at different life stages, some pre-2023 -- needs to check the combined annual premium against the threshold, not just look at any single policy in isolation. Pre-April-2023 policies are unaffected by this specific change and keep their original exemption terms.