NRIs or Non-Resident Indians are Indian citizens residing outside India temporarily. NRIs hold a passport issued by the Indian government and are eligible for all benefits as applicable for Indian citizens. NRIs also have the right to invest in India and also avail of the different taxation benefits. Over the years, ULIPs (United Linked Insurance Plans) have become a popular investment choice amongst NRIs. As per the Income Tax Act 1961, NRIs can also avail of the ULIP tax exemptions. By investing in tax-saving ULIPs, NRIs get an opportunity to save more on their income tax liability.
Here are the different ULIP tax benefits available for NRIs:
- Tax benefit on ULIP premiums: As per Section 80C of the Income Tax Act, all Indian citizens and NRIs can get ULIP tax treatment on the premiums paid for the ULIP policy. This Section allows a deduction of up to ₹1.5 lakhs on premiums. However, this ULIP tax treatment is only given if the ULIP policy premiums are less than or equal to 10% of the sum assured (for ULIP plans issued before April 2012) and 20% of the sum assured for ULIP plans issued after April 2012.
- Tax benefit on ULIP maturity and death benefits: As per Section 10(10D) of the Income Tax Act, ULIP tax exemption is given on the death benefit received by the nominee in case of the demise of the policyholder during the ULIP policy.
Moreover, under this Section, the ULIP tax benefits also extend to the maturity benefits received by the policyholder, subject to the following provisions:
- For ULIP plans purchased on or after February 2021, the maturity ULIP tax benefit is available only when the total annual ULIP plan premium is less than or equal to ₹2.5 lakhs.
- For ULIP plans purchased before February 2021, ULIP tax exemption is given for maturity amount where the premium is less than or equal to 20% of the sum assured.
Further, Budget 2021 introduced new provisions regarding the ULIP tax exemption for maturity proceeds. The maturity amount will be tax-free only when the annual premium for your ULIP plan is not more than ₹2.5 lakhs, and the above provisions under Section 10(10D) are fulfilled.
However, if the annual premium is above ₹2.5 lakhs, there will be a capital gains tax on ULIP returns. The rule is applicable for tax-saving ULIPs purchased on or after February 1, 2021. The maturity and death ULIP tax benefits are available for all Indian citizens and NRIs.
- Tax benefit on ULIP returns: As per the Budget 2021, tax on ULIP returns (long-term capital gains) is exempt from taxation, provided the total annual premiums of the ULIP plan are not more than ₹2.5 lakhs. This ULIP income tax benefit is also available for NRIs investing in ULIP plans in India.
That said, if an NRI or any other person surrenders the ULIP policy before the minimum lock-in period of five years, the surrender value of the ULIP will be added to the annual taxable income of the person and taxed as per the applicable slab rate. However, if the ULIP plan is surrendered after the expiry of the five-year lock-in, there will be no surrender charge, and the surrender value will also get the ULIP tax exemption.
Further, NRIs might end up paying double taxes, which can significantly reduce their overall income. Moreover, income tax for NRIs is much higher as compared to the permanent citizens of India. Hence, to avoid paying double taxes, NRIs should check the Double Taxation Avoidance Agreement (DTAA). India has DTAA with several foreign countries, which means that between both nations, the applicable income tax rates have been fixed.
As per the Foreign Exchange Management Act (FEMA), NRIs can invest in India, including ULIP plans. NRIs can compare different ULIP plans in India and choose one that best meets their requirements. Once the plan is shortlisted, a person only needs to fill a basic application form and submit the below documents:
- Scanned copy of the passport
- Recent passport-size photograph
- Proof of Indian residence
- Proof of residence overseas
- Proof of income
- Overseas Citizenship of India (OCI) card or Persons of Indian Origin (PIO) card
- A copy of the PAN card or Form 60 for those earning income in India
- A Foreign Residency Supplementary Questionnaire
- Medical examination, if needed by the insurance company[PP1] [Bh2]
What modes can NRIs use to pay their ULIP premiums?
NRIs can use these accounts to pay premiums for their tax-saving ULIPs:
- An Indian bank account
- An NRE or NRO account with a recognised Indian bank
The medium of premium payments for a ULIP policy can be:
- Domestic or international credit or debit card
- Internet banking
- E-wallets such as Google Pay and Paytm
- National Automated Clearing House (NACH)
- Credit Card Standing Instructions (CCSI)
How do NRIs benefit from investing in tax-saving ULIPs in India?
NRIs who invest their money in a ULIP plan in India benefit in different ways. Here are some of the advantages of a ULIP policy:
- ULIP plans offer dual benefits of life insurance and market-linked investments.
- NRIs can enjoy attractive returns in the long term.
- NRIs get ULIP income tax benefits for the premiums paid as well as death benefit and maturity proceeds.
Edelweiss Tokio Life Insurance ULIP Plan
Edelweiss Tokio Life Insurance offers ULIP products for Indian citizens and NRIs. As an NRI, you can invest in Edelweiss Tokio ULIP plans to enjoy comprehensive insurance, attractive features, competitive market returns and ULIP tax benefit.
Sound tax-saving investment options like ULIPs can help NRIs get guaranteed benefits and secure their financial future, especially their retirement years. However, it is important to be careful when investing in a ULIP policy in India. With so many different options available, you should be cautious to select the best ULIP policy with guaranteed returns and comprehensive insurance. Make a wise decision for a better tomorrow!
Swati Tumar - Travel & Finance Writer
Swati is a Writer in the day and an illustrator at night. Among her interests, she is quite fond of art and all things creative. She often indulges herself in creating doodles, illustrations, and other forms of content. She identifies herself as an avid traveler and shameless foodie.