India has the largest diaspora in the world, with around 17.5 million NRIs. According to a 2018 World Bank report, NRIs had remitted $80 billion back to India in different forms.1 NRIs are constantly on the hunt for new investment options to park their money. Be it bank deposits, real estate or mutual funds, they have a variety of options at their disposal. ULIPs are, arguably, one of the best options out there.
ULIPs are a combination of investment and insurance. A part of your premium is invested in funds of your choice, and the other part goes towards a life cover. These instruments offer a number of perks, such as flexibility to switch funds as per your needs and goals, adjust your risk intake as per your preference, and of course, tax benefits.
ULIPs are EEE (Exempt-Exempt-Exempt) instruments, which means which let you enjoy benefits at all stages of investment.
Additionally, they are also one of the rare instruments to be exempt from the LTCG (Long Term Capital Gains) tax. In Budget 2018, an LTCG tax was announced on equity mutual fund schemes and direct equities. If you hold a taxable market instrument for more than a year, you can incur LTCG on it, but not if it’s a ULIP. Read to know indepth about what is ulip.
A ULIP for NRI is not just a good retirement plan, but also a good tax-saving measure. Here are 4 tax benefits of ULIP for NRI investors.
Just like resident Indians, NRIs also enjoy tax benefits under Sections 80C. Section 80C includes a list of investments which, put together, can provide a tax deduction upto Rs. 1,50,000.
The premium paid for a ULIP plan in a year is eligible for tax benefits under this Section subject to certain conditions:
Tax benefits under Section 10(10D) are also available to NRIs. Under Section 10(10D), the maturity proceeds received from a ULIP are exempt from tax if the premium paid is less than 10% (20% for policies purchased before 1st April 2012) of the sum assured.
Partial withdrawals from a ULIP are also tax-free. Since a ULIP is an EEE product, the returns accumulated under the plan are tax-free, thus making any partial withdrawals exempted from tax. However, the partial withdrawals should be made only post the completion of five years to be eligible for such tax benefits. These benefits, too, can be claimed under Section 10(10D).
NRIs can be taxed in both their country of residence as well as India. Paying double the amount of tax can significantly reduce their income. This can be avoided with a DTAA (Double Tax Avoidance Agreement). India has signed a DTAA with 80 countries, thanks to which, an NRI can claim exemption from one of the two countries or credit of taxes paid in one of the two countries. Thus, ULIP taxation for NRI investors can be completely avoided as well.
NRIs operating from India can handily purchase their preferred ULIP product online. NRIs can go through ULIPs provided by different insurers and choose one that suits their needs. It is important to compare the different ULIPs available and then make an informed decision.
To apply for the same, NRIs would need to provide the following.
The policy will be issued in Indian Rupees (INR) and not in foreign currency. Thus, the premium payment would also need to be made in INR. They are various premium payment modes NRIs can avail of. NRIs can easily pay their policy premiums through NRO or NRE accounts maintained with an Indian bank.
A ULIP for NRI investors is one of the most lucrative ways of growing wealth, while ensuring financial protection at the same time. Make sure that you go through a lot of different plans and opt for one that matches your goals and needs.
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