Updated on: 11th August, 2023
Indian citizens who have shifted abroad and are residing out of the country for a short tenure are called Non-Resident Indians or NRIs. Being Indian citizens, they can avail themselves most of the benefits allocated to an Indian citizen. Similarly, they entertain the full right to invest money in India and enjoy various investment benefits.
Key takeaways
The various tax advantages that NRIs can avail themselves of when investing in ULIPs are:
- Tax Exemption under Section 10 (10D)
- Tax Deduction under Section 80C
- Partial Withdrawal Tax Benefits
- Fund Switching Without Tax Liability
- Tax Benefits on Death 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 NRIs.
Let us look at the ULIP tax benefits available for NRIs and how they can be helpful for them.
ULIP: A Reliable Investment Option
As a ULIP policyholder, an NRI can avail of 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.
ULIP Tax Benefits For NRIs
There are two types of ULIP tax benefits for NRIs. They are:
- Tax benefits on the premiums paid
- Tax benefits on the maturity and claims post-demise of the policyholder
Here are the details of the benefits that fall in these two categories:
Tax Exemption under Section 10(10D)
One of the primary tax benefits of investing in ULIPs for NRIs is the tax exemption on the maturity amount. According to Section 10(10D) of the Income Tax Act, any sum received by the policyholder upon maturity of the ULIP is entirely tax-free. This means that NRIs can enjoy the entire maturity amount without any tax deduction, making ULIPs an attractive long-term investment option for them.
Tax Deduction under Section 80C
NRIs can also benefit from tax deductions on their taxable income by investing in ULIPs under Section 80C of the Income Tax Act. Currently, NRIs can claim a deduction of up to ₹1.5 lakhs on the premium paid for ULIPs in a financial year. This deduction is applicable to the total premium paid for all life insurance policies, including ULIPs, provided it does not exceed the prescribed limit.
Partial Withdrawal Tax Benefits
ULIPs offer the flexibility of partial withdrawal after the lock-in period, which is usually five years. The amount withdrawn is tax-free, making it a useful feature for NRIs who may require funds for emergencies or other financial needs. This tax benefit can help NRIs effectively manage their finances and fulfil unexpected expenses without any tax implications.
Fund Switching Without Tax Liability
ULIPs provide investors with the option to switch between different investment funds based on their risk appetite and market conditions. NRIs can avail of this feature without incurring any tax liability on the gains made during the switching process. This tax-free fund switching allows NRIs to maximize their returns and optimize their investment portfolio.
Tax Benefits on Demise of the Policyholder
In the unfortunate event of the policyholder’s demise during the policy term, the nominee receives the death benefit. The death benefit received by the nominee is exempt from income tax under Section 10(10D). This ensures that the sum assured, along with any bonuses or investment gains, is entirely tax-free for the nominee, providing financial security to the family of the deceased NRI policyholder.
How to Invest in India to Take ULIP Tax Benefits Available for NRIs?
Foreign Exchange Management Act (FEMA) allows 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.
What Modes Can NRIs Use to Pay Their ULIP Premiums?
NRIs interested in securing their financial future through ULIPs can conveniently pay their premiums using multiple modes that cater to their specific needs and locations. We will now explore the various modes through which NRIs can pay their ULIP premiums.
Online Payment
In the digital age, online payment has become the most accessible and widely-used mode of paying ULIP premiums for NRIs. They can easily access their insurance provider’s website or mobile app and make premium payments using their international debit or credit cards. Additionally, they may have the option to transfer funds from their NRE (Non-Resident External) or NRO (Non-Resident Ordinary) bank accounts directly to the insurer’s account.
ECS (Electronic Clearing Service)
For NRIs who prefer a hassle-free payment process, the Electronic Clearing Service (ECS) is a convenient option. By linking their NRE/NRO bank account to the ULIP policy, the premium amount will be automatically deducted from their account on the due date. This ensures timely payments without the need for manual intervention.
SWIFT Transfer
For NRIs who prefer to make bulk payments or have significant funds in their foreign accounts, SWIFT (Society for Worldwide Interbank Financial Telecommunication) transfer is a viable option. Through this mode, they can transfer funds from their foreign bank account to the insurance company’s account directly. It is essential to provide the correct policy details and SWIFT code to ensure smooth and accurate transactions.
NRI Service Centers
Many insurance providers have dedicated NRI service centers to cater specifically to the needs of non-resident customers. NRIs can visit these centers or reach out to them via phone or email to get assistance with their premium payments. These service centers can guide NRIs through the payment process, address their queries, and offer personalized solutions.
Authorized Agents
In certain cases, NRIs might prefer to seek assistance from authorized agents or representatives of the insurance company. These agents can help NRIs understand the payment options available to them, complete the necessary paperwork, and ensure that their premium payments are processed smoothly.
Conclusion
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.
