Indian citizens who are temporarily living outside India are known as NRIs (Non-Resident Indians). NRIs are entitled to all the advantages available to Indian citizens because they possess an Indian passport. NRIs are also permitted to make investments in India and take advantage of certain tax breaks. Over time, ULIPs (United Linked Insurance Plans) have grown to be a well-liked investment option among NRIs.
NRIs may utilise the ULIP tax exemptions in accordance with the Income Tax Act of 1961. They have the chance to reduce their income tax obligations by investing in tax-saving ULIPs.
It is recommended that NRIs opt to use the ULIP return calculator to calculate the returns. This can help them select a plan that suits their needs well.
The various ULIP tax benefits for NRIs are as follows:
- Tax incentive on ULIP premiums: All Indian citizens and NRIs are eligible for ULIP tax benefits on the premiums paid for the ULIP under Section 80C of the Income Tax Act. A premium deduction of up to 1.5 lakh rupees is permitted by this section. However, for ULIPs issued prior to April 2012 and for plans issued after April 2012, this ULIP tax benefit is only provided if the ULIP insurance premiums are less than or equal to 10% of the sum assured and 20% of the sum assured, respectively.
- Tax benefit on ULIP maturity and loss of life benefits: In accordance with Section 10(10D) of the Income Tax Act, the nominee may obtain a tax exemption on the occasion of the loss of life benefit in the event that the policyholder passes away while the ULIP is still in effect.
- Additionally, as stated in the section, the policyholder’s maturity benefits are also subject to the ULIP tax benefits under the following restrictions:
- The maturity ULIP tax benefit is only available for ULIPs bought on or after February 2021, where the total annual ULIP premium is less than or equal to 2.5 lakhs.
- When the premium is less than or equal to 20% of the sum insured, ULIP tax exemption is offered for the maturity amount for plans purchased before February 2021.
Additionally, new rules governing the ULIP tax exemption for maturity proceeds were established in Budget 2021. Only when the annual premium for your ULIP is under 2.5 lakhs, and the aforementioned conditions under Section 10(10D) are met, can the maturity amount be tax-free.
On ULIP returns, there would be a capital gains tax if the annual premium exceeds 2.5 lakhs. For tax-saving ULIPs purchased on or after February 1, 2021, the rule is applied. All Indian citizens and NRIs are eligible for ULIP tax benefits at maturity or after passing away.
Tax benefit on ULIP returns:
According to the Budget 2021, long-term capital gains from ULIPs are exempt from taxation, as long as the plan’s total yearly premiums do not exceed Rs 2.5 lakh. NRIs investing in ULIPs in India are also eligible for this ULIP income tax benefit.
Having said that, the ULIP’s surrender value may 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. However, there won’t be a surrender fee, and the surrender value may also receive the ULIP tax exemption if the ULIP is surrendered after the five-year lock-in period has passed.
NRIs may also end up paying double taxes, which can considerably lower their overall income. Additionally, NRIs pay a lot more income tax than Indian nationals who are citizens for life. Therefore, NRIs should review the Double Taxation Avoidance Agreement (DTAA) to prevent paying double taxes. The appropriate income tax rates between India and a number of other countries have been determined thanks to the DTAA.
How do NRIs invest in ULIPs in India?
NRIs are permitted to invest in India under the Foreign Exchange Management Act (FEMA). In India, NRIs can examine various ULIP plans and pick the one that best suits their needs.
*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C apply
*Tax benefit is subject to change in tax laws.
*Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale. Read more about smart export import expedition business guidance for all entrepreneurs dvcodes