Updated on: 11th August, 2023
Among all the investment options in India, Unit Linked Insurance Plan (ULIP) is currently one of the most popular options, and many people are investing in it. However, what if an NRI wants to invest in ULIP in India? NRIs can invest in ULIP schemes to benefit the security of insurance and returns on investment.
Key Takeaways
- NRIs can invest in ULIPs in India, subject to certain regulations and procedures set by the Insurance Regulatory and Development Authority of India (IRDAI).
- NRIs can benefit from exposure to Indian equity and debt markets through ULIP investments.
- ULIPs allow switching between investment funds based on market conditions and risk appetite.
- ULIPs have the potential to generate wealth over the long term, helping NRIs achieve their financial goals.
- NRIs can claim tax benefits on ULIP premiums and tax-free maturity benefits.
Investment is one of the main sources of wealth generation. It helps you earn money and assets with the help of the right schemes. However, Investing can be a little tricky if you are residing in a foreign land. Many people have questions about whether non-residents can invest in India. When it comes to India, NRI investors are welcome to invest in various domestic schemes. ULIPs are one of the most popular plans for investment.
What is ULIP?
ULIP plans stands for Unit Linked Insurance Plan. It is a financial product that combines life insurance coverage with investment opportunities. A portion of the premium you pay when you invest in a ULIP is used to provide life insurance coverage. In contrast, the remaining portion is invested in a variety of funds, such as equity, debt, or a mix of both, based on your risk appetite. ULIPs offer a dual benefit of life coverage and potential wealth creation through investment returns.
Also Read: What is ULIP?
What are the Criteria to be NRI?
As per Section 2(30) of the Income Tax Act, 1961, “non-resident as a person who is not a resident”. A Non-Resident Indian (NRI) is an Indian citizen who is residing outside India for 182 or more days in a financial year. Income Tax Act 1961 and Foreign Exchange Management Act govern and prescribes the taxation rules for NRIs in India.
According to the FEMA, a NRI is a person who has left India or remains outside of it for the purpose of business, employment, vocation, or any other circumstances indicating his or her intention to remain outside India for an unsure amount of time.
Can Non-Residents Invest in ULIPs in India?
As per the Government of India and the regulations of FEMA (Foreign Exchange Management Act), NRIs are allowed to invest in India. ULIPs (Unit Linked Insurance Plans) have gained popularity as a hybrid financial instrument combining insurance and investment benefits. NRIs can invest in ULIPs, subject to certain regulations and procedures set by the Insurance Regulatory and Development Authority of India (IRDAI).
It is suggested that as an NRI, you should look through all the ULIP investment options available in India and select the best ULIP policy in India that fits your investment goals
Why NRIs Should Invest in India?
There are many reasons why an NRI should invest in India. Here are a few important points to note:
- India ranks among the top ten countries in the world in terms of economic growth.
- NRIs get new investment opportunities from India-based banks and NBFCs.
- NRIs get a wide range of investment options available in India.
- From traditional investment options like PPF, Insurance, etc., to modern market-linked investment options like ULIPs, NRIs can invest as per their needs.
- As an NRI, by investing in India, you get access to your country’s stock market through options like ULIPs, which allows you to get a bundle of insurance and investment at once. Also, if you plan on a long-term ULIP investment, the possibility of return is much higher.
- You get a better opportunity to plan your future moves by investing in a market you know and know of.
How to Invest in ULIPs in India If You Are an NRI?
If you are an NRI, all you need is to have the required documentation and a mode of payment through an Indian bank to invest in India. There may be other minor requirements, but in general, you only need to fulfil the documentation part and have an Indian source of payment for investing in the country. You will be asked for an NRE/NRO bank account in an Indian bank as well.
Modes of Premium Payment for NRI Investors
NRIs can make premium payments using various modes, such as:
- Online payments through net banking using their NRE/NRO accounts.
- Electronic fund transfers from foreign bank accounts to the insurer’s designated account.
- Payment through debit or credit cards issued abroad.
- Offline payments through cheque or demand drafts drawn on their NRE/NRO accounts.
List of Documents NRIs Require to Invest in ULIP in India
In order to be eligible to invest in India as an NRI, you must comply with the rules and regulations. Here is a general list of documents required to be submitted by NRIs to invest in India:
- An updated and recent copy of the passport for identification and age
- Passport size photographs (Recent)
- Proof of residence (Overseas)
- Proof of residence (In India)
- Proof of Income
- Overseas Citizenship of India (OCI) or a Persons of Indian Origin (PIO) Card - In case you are a permanent overseas resident having an Indian origin
- A copy of Form 60 or PAN card (if you have an Indian source of income)
Furthermore, there are some basic documents that are required to comply with the KYC and anti-money laundering norms. The insurer might ask for other documentation that must be cleared while selecting a ULIP Policy.
Note: The actual list of documents might vary depending on the insurer and their policy.
Benefits of Investing in ULIPs for NRIs
There are numerous advantages of ULIPs beyond providing returns and insurance to the policyholders. Take a look at some of the benefits of ULIPs that can be useful for NRIs:
Insurance Coverage
ULIPs offer insurance coverage, providing financial security for the policyholder’s family in case of unfortunate events.
Market Exposure
NRIs can benefit from exposure to Indian equity and debt markets through ULIP investments.
Flexibility
ULIPs allow switching between investment funds based on market conditions and risk appetite.
Wealth Creation
ULIPs have the potential to generate wealth over the long term, helping NRIs achieve their financial goals.
Tax Efficiency
Tax benefits on premiums and tax-free maturity benefits enhance the overall returns from ULIP investments.
Tax Exemptions for NRIs Investing in ULIPs in India
Not only is a ULIP for NRI a good retirement plan, but it also helps reduce the tax burden. The following is a list of ULIP tax benefits for NRI investors.
Discounts on ULIP Premiums
NRIs are entitled to the same tax benefits under Section 80C as Indian residents. A tax deduction of upto ₹1,50,000 can be availed of by NRIs as per the list of investments provided in Section 80C. These deductions are subject to the following conditions:
- The deduction is applicable to premium payments that do not exceed 10% of the total sum assured under the ULIP (20% for ULIPs bought before April 1, 2012). This deduction is available for premiums that you or your family members have paid.
ULIP Maturity Deductions
In accordance with Section 10(10D) of the Income Tax Act (ITA), the death benefit received by the nominee in the event that the policyholder passes away while the ULIP policy is in effect, is tax-exempt.
Also Read: What is Section 10D of the Income Tax Act?
Double Tax Avoidance Agreement (DTAA)
NRIs may be subject to taxation in both their home country and India. Their income could be significantly reduced by paying two times as much in taxes. A DTAA (Double Tax Avoidance Agreement) can help to avoid this. Due to India’s DTAA agreements with 80 nations, an NRI can be eligible for tax exemption from one of the two nations or a tax credit for one of the two.
Important Considerations for NRIs Investing in ULIPs in India
Investing in ULIPs is a smart decision for anyone. It can help you accumulate wealth and secure your future with the insurance feature. While investing in ULIPs, take the following factors into consideration:
Currency
NRIs can invest in ULIPs using foreign currency held in their NRE (Non-Residential External) or FCNR (Foreign Currency Non-Residential) accounts.
Repatriation
Investment returns and maturity proceeds can generally be repatriated outside India after necessary taxes are paid.
Regulations
NRIs need to follow the regulations set by the Reserve Bank of India (RBI) and IRDAI for investing in ULIPs.
Taxation
Tax implications vary based on factors like investment duration and residency status. NRIs should consult with tax experts to understand their tax liabilities.
Policy Ownership
NRIs can own ULIP policies in their own name and nominate residents or NRIs as beneficiaries.
Premium Payment
NRIs can pay premiums using funds from their NRE/NRO (Non-Residential Ordinary) accounts or through inward remittances from abroad.
Final Thoughts
NRIs can invest in ULIPs in India. ULIPs offer both insurance and investment benefits. But before investing, they should understand the rules, taxes, and documents needed. Consulting with financial consultants and tax professionals can help make informed choices of investment for NRIs that align with their financial goals and circumstances.
