A Delhi Income Tax Appellate Tribunal has provided significant relief to an Indian resident who purchased a life insurance policy in Dubai while working as a non-resident. The Delhi Bench of ITAT ruled on July 31, 2026 that foreign insurer policies are not automatically subject to the Black Money Act, especially when premiums originate from non-taxable foreign earnings. The case involved Sarvesh Naidu, who worked in Dubai from April 2001 to July 2007 and purchased a life insurance policy from Scottish Life International (later RL360 Insurance Company Ltd) in March 2005, paying annual premiums of USD 8,898. After returning to India in July 2007, he continued paying premiums from taxable Indian salary through Indian bank accounts, and the policy matured in 2016, providing USD 52,896.76 (roughly ₹35.25 lakh) in maturity proceeds. The tribunal held that assets bought with money that was never taxable in India in the first place, because it was earned while genuinely non-resident, don't qualify as 'undisclosed foreign assets' under the Act, provided the source is properly explained.
According to the tribunal's findings, Naidu initially paid the premiums from his Dubai salary while he was a non-resident and that income was not chargeable to tax in India. After returning to India in July 2007, he continued paying the policy premiums through Indian bank accounts, initially Citi Bank and later HDFC Bank, in accordance with foreign-exchange rules. The taxpayer maintained proper documentation and did not maintain an overseas bank account after returning to India. The tribunal noted that after returning to India, he paid the subsequent premiums through his Indian bank accounts, initially Citi Bank and later HDFC Bank, in accordance with foreign-exchange rules, establishing the source of the source by demonstrating that the premiums were paid from non-taxable foreign earnings during his non-resident period. The policy eventually matured and the proceeds were credited to his HDFC Bank account on 24 June 2016.
The taxpayer relied on CBDT Circular No. 13 of 2015 dated July 6, 2015, which clarified the tax compliance requirements for undisclosed foreign income and assets under the Black Money Act. In Question No. 18, the CBDT was asked: Similarly, in Question No. 32, the CBDT clarified that if a person acquired a foreign asset while he was a non-resident using income that was not chargeable to tax in India, such an asset would not be considered an undisclosed foreign asset under the Black Money Act. However, if income was accrued or received in India while he was non-resident, such income is chargeable to tax in India. If such income was not disclosed in the return of income and the foreign asset was acquired from such income, then the asset becomes an undisclosed foreign asset, and the person may declare such asset under Chapter VI of the Act**. The tribunal held that since such assets were fully explained, they would not be treated as undisclosed foreign assets and would not have to be declared under Chapter VI of the Act.
The tribunal relied on the Supreme Court's 2001 ruling in Oxford University Press v. CIT, which established the same principle in a different context. On the Black Money Act point, the Tribunal held that assets bought with money that was never taxable in India in the first place, because it was earned while genuinely non-resident, don't qualify as 'undisclosed foreign assets' under the Act, provided the source is properly explained. The tax authority had argued that Section 10(10D)'s exemption for life insurance maturity proceeds only applies where the insurer is an Indian insurance company, reading in a definition from a different section of the Act (Section 2(28BB)), and, since the insurer was foreign, treated the entire amount as an undisclosed foreign asset under the Black Money Act. However, the tribunal found that Section 10(10D) itself contains no requirement that the insurer be Indian; the word 'insurer' doesn't even appear in that Section, and a definition from elsewhere in the Act cannot be imported into a provision that doesn't reference it. The tribunal also rejected the tax department's interpretation of Section 10(10D), holding that the section does not stipulate that a life insurance policy must be issued by an Indian insurer for the exemption to apply.
The ruling establishes important precedents for NRIs and returning NRIs who have accumulated financial assets abroad while genuinely non-resident. The ruling reinforces two protections that matter well beyond this one case: foreign-insurer maturity proceeds aren't automatically excluded from Section 10(10D) just for being foreign, and money that was clean and non-taxable when earned abroad doesn't retroactively become 'undisclosed' merely for not appearing in a Schedule FA filing at the time. As per CA Sidhant Agarwal, founder, India For NRI, this is a recurring, high-stakes fact pattern - NRIs who bought foreign insurance, pension, or investment products while genuinely non-resident, using money never taxable in India, then returned home without realizing (or being told) those legacy foreign assets needed disclosure once they became resident. The case highlights that returning NRIs should maintain a comprehensive list of foreign assets including shares, securities, bank accounts, insurance policy, etc. Further, to the extent possible they should preserve documentation of source of funds to establish the trail of funds for every foreign asset. The tribunal specifically noted that once such evidence is produced, the AO cannot reject creditworthiness merely on presumptions without conducting proper enquiry, providing crucial relief to genuine investors and NBFCs in similar situations.
