I am currently residing in UAE. For the education of my child, I've invested in LIC international child education plan. This would start giving me money when my child turns 18. My question is that if at that point of time, I decide to return to India, will this money be taxed? If so, how and how much would be the tax liability?

Ans: You are living in UAE and have planned well for your child's education.

Investing early in a child education plan shows foresight and responsibility.

You have chosen a LIC International Child Education Plan for future payouts.

Your primary concern is taxation if you return to India when the payout starts.

Important Things About LIC International Policies

LIC International is a subsidiary of LIC of India based in Dubai.

It is registered under foreign insurance regulations, not under Indian IRDA rules.

Such policies are considered as foreign insurance policies from an Indian perspective.

Payouts from such policies depend on where you are tax resident when money is received.

Understanding Resident Status for Taxation in India

In India, your taxability depends first on your residential status.

Residential status is decided based on number of days you stay in India.

If you stay 182 days or more in India in a financial year, you become Resident.

If you stay less, you remain Non-Resident (NRI) for that financial year.

If you return to India permanently, you will mostly become Resident in that year.

How LIC International Plan Payout Will Be Treated If You Return to India

If you return and become Resident, Indian tax rules will apply to your global income.

Global income includes all incomes earned inside or outside India.

Therefore, money received from LIC International will be taxed in India.

Whether This Payout Will Be Tax-Free or Taxable Depends on Key Factors

In India, Section 10(10D) of Income Tax Act gives exemption to life insurance receipts.

But the exemption is available only if certain conditions are fulfilled:

Main Conditions for Tax Exemption Under Section 10(10D):

The premium paid should be less than 10% of sum assured (for policies issued after 1-Apr-2012).

Policy should be a pure insurance policy and not an investment-heavy product.

No payout should be under Keyman insurance or employer-employee schemes.

Issues Specific to LIC International Policies

LIC International policies sometimes have high premium-to-sum-assured ratio.

If your premium in any year exceeded 10% of sum assured, exemption will not be available.

Then, the money received will become fully taxable in India as “Income from Other Sources”.

If it qualifies under Section 10(10D), then payout will be completely tax-free.

How Much Will Be the Tax Liability If It Becomes Taxable

If it becomes taxable, entire maturity amount will be added to your total income.

Tax will be as per your income tax slab in the year you receive the money.

If your taxable income exceeds Rs 15 lakh, highest slab rate of 30% will apply.

Plus 4% Health and Education Cess will be added.

Hence, effective tax rate can be 31.2% if you fall in highest slab.

Additional Points About TDS

LIC International may deduct TDS (Tax Deducted at Source) as per UAE laws.

However, India does not automatically give credit for taxes deducted abroad.

You may have to claim foreign tax credit by filing Form 67 along with your Indian tax return.

Is There a Double Tax Avoidance Treaty (DTAA) Benefit

India and UAE have DTAA agreements.

But DTAA will not completely save you if you become Resident in India.

It only helps you to avoid double taxation, not to avoid Indian taxation.

Summary of Tax Scenarios for You

If policy qualifies under Section 10(10D), payout fully tax-free.

If policy fails to qualify, full amount taxable in India at slab rates.

Returning to India before payout increases the chances of Indian taxation.

What Actions You Should Consider Now

Immediately check your LIC International policy terms carefully.

Specifically check the Sum Assured versus Premium ratio.

Check if the policy document mentions compliance with Indian Section 10(10D).

Also check if it is a pure insurance policy or a savings-cum-insurance plan.

Write an email to LIC International to clarify tax treatment if needed.

Additional Thoughtful Recommendations for You

If you find that tax exemption may not be available, start planning early.

You may consider partial withdrawals before returning to India if permitted.

Another option is to re-invest maturity proceeds in tax-efficient instruments after returning.

Tax-free bonds, Equity mutual funds (up to Rs 1.25 lakh LTCG), PPF, Sukanya Samriddhi Yojana are better options.

Engage with a Certified Financial Planner to design an India-specific plan post-return.

If You Hold LIC, ULIP, Investment-cum-Insurance Policies Inside India

It is very important to review those policies too when you return.

Many old policies have high costs and low returns.

Surrender and reinvestment into mutual funds should be evaluated carefully.

Final Insights

Your early investment planning is very thoughtful and praiseworthy.

However, country of residence changes many tax rules.

Understanding Indian tax law impact before returning is very important.

You must now do a policy review and make a simple tax impact calculation.

With right planning, you can fully enjoy the fruits of your long-term savings.

Future financial freedom depends on today’s tax-smart actions.

Plan your return and payouts with tax efficiency and peace of mind.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment