NRI Compliance Guide: Indian Life Insurance for Canadian Residents

Compliance Guidelines for NRIs in India

In India, the Reserve Bank of India and the Foreign Exchange Management Act (FEMA) oversee the compliance guidelines for Indian life insurance companies serving non-resident Indians. Details of these guidelines are:

• Premium Payment

  The payment of premiums for life insurance policies can be done in both foreign and Indian Rupee currency. The rules for the same are:

  • For payment in Canadian dollars, the payment must be done using the NRE (Non-Resident External) account or the FCNR (Foreign Currency Non-Resident) account
  • For payment in Indian Rupee, an NRO (Non-Resident Ordinary) account can be used
     

• Through the Overseas Office of the Indian Insurer

  If an NRI in Canada purchases a life insurance policy from the overseas office of an Indian insurance company, they can:

  Get the policy account transferred to India along with the actuarial reserves maintained for the policies when they move back to India

  • When transferred, the policy is converted to Indian Rupee
  • The premium can be paid in Canadian dollars even after returning to India. However, the maturity amount must be transferred to India within 7 days of disbursement.
     

• Claim Settlement

  The guidelines by the RBI for claim settlement of Indian life insurance for NRIs are as follows:

  
  

Policy benefit received in NRE account

Payout in NRE account is in proportion of the payment done from NRE account. You need to provide the bank statement highlighting all the transactions for premiums paid towards your policy through the NRE account.

• All premiums paid from the NRE account: If you have paid all premiums from the NRE account, you will receive a 100% payout in your NRE account.
• Partial premiums paid from the NRE account: In case you have paid a certain percentage of your premiums from the NRE account then the same percentage of payout amount will be transferred to your NRE account and balance amount will be paid out in NRO account.
   

Payout in NRO Account

If the entire life insurance policy premium was paid using an NRO account, the payout will also be received in the NRO account and in Indian Rupees. This applies to any type of policy benefit whether death, survival, or maturity benefit.

Tax Benefits in India

Indian life insurance for NRIs in Canada offers several tax benefits as well. These are:

• When an NRI in Canada purchases a life insurance policy in India using the NRE account, they are eligible to waive the GST on it is subject to eligibility criteria and submission of documents every year.
• Section 80C of the Income Tax Act of 1961 provides tax deductions of up to ₹1.5 lakhs (in case of old tax regime)

• Death benefit remains tax-free under Section 10(10D) of the Income Tax Act of 1961.
   

Compliance Guidelines for Indians in Canada

The Canadian government also has specified norms for NRIs in Canada who plan to purchase life insurance in India. NRIs who are taxpayers in Canada need to follow certain tax regulations. It may also include a declaration of foreign assets, such as the purchase of a life insurance policy in a foreign country like India. For more details, you may visit a nearby authorised Canadian government office or their official portal.

Common Compliance Mistakes that You Should Avoid

When purchasing an Indian life insurance policy, it is essential for NRIs in Canada to exercise caution and be informed. Here is a list of some of the common compliance mistakes that people may commit:

Non-disclosure in Form T1135

In Canada, taxpayers are required to submit several details in Form T1135. One of these is the specified foreign assets, which also include a life insurance policy abroad. People may overlook or forget adding life insurance interest in India in this income tax form.

Tip: It is essential to thoroughly review the form and include all required details before submitting. Take the help of a professional if needed.

Paying Premium From the Wrong Account

In the compliance rules above, you may have read about the importance of choosing the right bank account for life insurance premium payment. If you pay the premium using the NRO account, the benefits will also be associated with the same account. The same applies to FCNR and NRE accounts.

Tip: When considering your future plans, carefully select the account for life insurance premium payments. If you want to settle back in India or have family there, choosing an NRO account can be beneficial. However, if you want policy benefits in Canadian dollars, it is better to choose the NRE account.

Misunderstanding Claim Disbursement

Some people may have incomplete information regarding the disbursement of policy benefits. This leads to wrong financial planning and disappointment when the benefit is received.

Tip: Ask your insurer all the questions you have and read the policy documents carefully. Review the latest updates from both the Indian and Canadian governments regarding NRI life insurance compliance guidelines for a comprehensive understanding.

Incomplete Documentation

To purchase life insurance in India, NRIs need to submit certain documents. It may include a copy of the passport, medical report, proof of age, and proof of income, among other documents. If you fail to provide any of the required documents, the application for life insurance may be rejected.

Tip: Check the list of required documents for life insurance with your insurer. Make sure to check all documents twice before submitting to avoid unnecessary hassle.

CRS Declaration

For Indians in Canada, a CRS declaration is needed which is a self-declaration for investments in India. You can find the form online, download it, fill it and submit it with the relevant documents. You would also have to provide your Social Insurance Number (SIN) when buying the insurance policy.

Conclusion

The Government of India aims to create favourable life insurance regulations for NRIs, making it easier for them to purchase a policy. The benefit of life insurance in India can be received in the preferred currency of the policyholder, depending on the premium payment method. With a detailed understanding of the compliance guidelines, it becomes easier to make the most of the life insurance policy. Start planning a life insurance policy today and secure the financial future of your loved ones!

FAQs

1. Can NRIs in Canada avail of tax benefits in India for life insurance?

   Yes. NRIs in Canada are eligible for tax benefits against Indian life insurance plans. You can avail tax deductions up to ₹1.5 lakhs under Section 80C of the Income Tax Act of 1961. The death benefits are also tax-free³.

   
   

2. Is GST charged on purchasing Indian life insurance?

   NRIs in Canada are not liable for GST wavier which is subject to eligibility criteria and submission of documents every year if they pay the life insurance premium through an NRE account³.

   
   

3. Can NRIs in Canada receive policy benefits in Canadian dollars?

   Yes. If the life insurance premium payment is done in Canadian dollars through the NRE account, the policy benefit may also be received in the exact proportion in Canadian dollars².

   
   

References:

1. https://www.canada.ca/en/revenue-agency/services/tax/international-non-residents/information-been-moved/foreign-reporting/questions-answers-about-form-t1135.html?utm
2. https://rbidocs.rbi.org.in/rdocs/notification/PDFs/APDIR18557A831732AC4015BB51C20D0E7DFC76.PDF
3. https://cleartax.in/s/income-tax-for-nri