NRIs can invest in India and take advantage of the various tax breaks. ULIPs (United Linked Insurance Plans) have become a well-liked investment option among NRIs. NRIs may take advantage of ULIP tax exemptions per the Income Tax Act of 1961. NRIs might reduce their income tax obligation by investing in ULIPs that offer tax benefits.

What is ULIP and how does it work?

The various ULIP tax benefits are as follows for NRIs:

  • Benefit from taxes on ULIP premiums: All Indian citizens and NRIs are eligible for ULIP tax treatment on the premiums paid for the ULIP policy under Section 80C of the Income Tax Act. This clause permits a premium deduction of up to 1.5 lakh rupees. However, for ULIP plans issued before April 2012 and for ULIP plans issued after April 2012, this ULIP tax treatment is only provided if the ULIP insurance premiums are less than or equal to 10% of the sum assured and 20% of the sum guaranteed, respectively.
  • ULIP tax benefits and death benefits: Per Section 10(10D) of the Income Tax Act, the nominee will obtain a tax exemption on the death benefit if the policyholder passes away while the ULIP policy is still in effect.

NRIs investing in ULIP plans in India are also eligible for this ULIP income tax benefit.

On ULIP returns, there would be a capital gains tax if the annual premium exceeds 2.5 lakhs. The rule applies to tax-saving ULIPs purchased on or after February 1, 2021. The ULIP’s surrender value will be added to the person’s yearly taxable income and taxed at the appropriate slab rate if an NRI or any other person surrenders the policy before the minimum lock-in period of five years. But, there won’t be a surrender fee, and the surrender value will also receive the ULIP tax exemption if the ULIP plan is surrendered after the five-year lock-in period.

The ULIP calculator is a simple tool that you can use to predict the return you might get at maturity by entering a few details.

How do NRIs purchase ULIPs in India?

NRIs can invest in India under the Foreign Exchange Management Act (FEMA), including in ULIP plans. In India, NRIs can examine various ULIP programs and pick the one that best suits their needs. Once the project has been narrowed down, all that is required of the applicant is a simple application form and the following supporting documentation:

  • Passport image captured by a scanner
  • A recent photo of a passport
  • Proof of Indian citizenship
  • Proof of residence overseas
  • Evidence of income people of Indian origin (PIO) or overseas citizenship of India (OCI) cards
  • A copy of Form 60 or pan card for people making money in India
  • A supplemental questionnaire for foreign residency
  • A medical exam, if required by the insurance provider

What methods are available for NRIs to pay their ULIP premiums?

NRIs can use these accounts to pay the premiums for their tax-saving ULIPs:

  • A bank account in India
  • A recognized Indian bank’s NRE or NRO account

A ULIP policy’s premium payment method options include the following:

  • Foreign or domestic credit or debit card
  • Web-based banking
  • E-wallets like Paytm and Google Pay
  • Automated Clearing House of the Country (NACH)
  • Steps for Credit Card Standing (CCSI)

What are the advantages of investing in tax-saving ULIPs in India for NRIs?

  • Investment flexibility: One of the main advantages of ULIPs is that they offer flexible investment possibilities. Depending on their level of risk tolerance and financial objectives, NRIs can select from various investment options, including equities, debt, and balanced funds. As a result, NRIs can modify their investing plan to meet their unique demands and situation.
  • Tax Deductions under Section 80C: One other benefit of ULIPs is that the premiums paid for these policies are deductible from income under Section 80C of the Income Tax Act. This means that NRIs can deduct up to Rs. 1.5 lakhs in taxes from the premiums they pay for their ULIPs each financial year. NRIs may be able to reduce their tax obligations as a result, which could boost overall gains on their investments. Currently, there are two tax regimes in India – new and old. Choose the correct one after consulting an expert to get the desired tax benefit. You can opt for a regime change during the next financial year. * There are two tax regimes in India – new and old. Choose the correct one after consulting an expert to get the desired tax benefit. You can opt for a regime change during the next financial year.
  • Efficiently manage financial goals: ULIPs also provide several other features and advantages, including the ability to change investment funds, the ability to make partial withdrawals, and top-up premiums. These features can give NRIs more control over their investments and make managing their financial objectives easier. You can use a ULIP calculator to estimate future returns and the value of a ULIP investment.