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Indian citizens who have shifted abroad and are residing out of the country for a short tenure are called Non-Resident Indian or NRIs. Being Indian citizens, they can avail themselves of all the benefits allocated to an Indian citizen. Similarly, they entertain the full right to invest money in India and enjoy various investment benefits. An NRI is eligible to use all the tax benefits on their investments in India. Unit Linked Insurance Plans, abbreviated and popularly known as ULIPs, have become a popular investment option among the NRIs.
Let’s look at the ULIP tax benefits available for NRIs and how they can be helpful for them.
As a ULIP policyholder, an NRI can avail tax exemption on their plan under the guidelines of the Income Tax Act, 1961. This allows them to save more money because investing in ULIPs gives them the option to save more tax.
So, an NRI can opt for different financial avenues in India to build more on their savings. This not only allows them to be assured of their financial growth and stability but, at the same time, allows them to build up a decent corpus back at their home while saving income tax.
There are two types of ULIP tax benefits for NRIs. They are:
Let’s understand the ULIP tax benefits available for NRIs in detail:
All the ULIP policyholders, Indian or NRI, are eligible to get tax treatment on the premiums they pay for their ULIP policy as per the guidelines of Section 80C of the Income Tax Act.
According to this act, a deduction of up to ₹1.5 lakhs is allowed on premiums paid. Any amount above this will be taxable. Although, as a ULIP policyholder, you must note that these tax benefits are only applicable if the premium amount is equal to or less than 20% of the sum assured for plans issued post 2012.
A policyholder or the nominee is eligible for tax benefits on the maturity amount or the death benefits under Section 10 (10D) of the Income Tax Act. As per this act, a policyholder will not have to pay income tax on the maturity amount. Otherwise, in the event of the policyholder’s demise, the nominee will not have to pay income tax for the sum received as the death benefit.
However, the maturity benefits are subject to some provisions of Section 10 (10D) of the Income Tax Act.
-For ULIP plans that have been issued before Feb 2021, the maturity tax benefit is applicable only when the ULIP premium amount is less than or equal to 20% of the total ULIP sum assured.
-However, for the ULIP plans that have been issued after Feb 2021, the scenarios change to the ULIP premium amount being less than or equal to ₹2.5 Lakhs.
Foreign Exchange Management Act (FEMA) allows the NRIs to invest in India. However, investing in India as an NRI involves an elaborated documentation procedure that one must know about. As FEMA allows investment in ULIP policies, it also opens the door to ULIP tax benefits for NRIs.
So, if an NRI wants to take the tax benefits of ULIP policies, they must look for the right ULIP policy that best matches their financial requirements. Once the ULIP policy is finalized, NRIs will be required to fill out the policy application form and provide the below-mentioned documents:
- A copy of their passport (Scanned)
- Passport-sized photograph (recent)
- Proof of residence (Indian)
- Proof of residence (overseas)
- Proof of income (valid source of income)
- Copy of PAN card Form 60 (For the NRIs earning in India)
- Foreign Residency Supplementary questionnaire
- Medical examination (If required by the company)
- Copy of Person of Indian Origin (PIO) card
- Copy of Overseas Citizenship of India (OCI) card, etc.
Overall, ULIP tax benefits for NRIs are a great way to save taxes in India. Also, along with market-linked investment options, NRIs get the added benefit of life insurance with ULIP. This makes ULIP an excellent choice for investment in India while allowing tax benefits on your hard-earned money.