Who is an NRI?
An NRI is an Indian citizen who resides outside India temporarily and holds a valid passport issued by the Indian Government. For instance, individuals residing abroad on a visa issued for employment or business purposes are considered to be Non-Resident Indians.
Criteria to be termed as NRI
An individual is termed to be a resident of India for taxation if –
- They are in India for a minimum of 182 days during the financial year
Or - They are in India for a minimum of 365 days in the 4 years before that year, and a minimum of 60 days in the relevant year
If these conditions are not fulfilled, and you stay in India for less than 182 days, you would be termed as an NRI1.
NRIs get to enjoy all of the benefits applicable to resident Indian citizens, including the right to invest. If you’re categorized as a non-resident, you can still enjoy the benefits of investing in India. And Unit Linked Insurance Plans (ULIPs) are one of the preferred investment options for NRIs keen on purchasing investments in their home country.
What is ULIP?
If you’re planning to invest in India, one of the many questions you may have unanswered is this: what is ULIP? A Unit Linked Insurance Policy (ULIP) is essentially a unique hybrid investment option that combines both insurance and investment aspects. The premium that you invest in a ULIP is split into two parts.
A portion of your premium is directed towards providing you with a life cover, while the other part is invested in the financial markets. ULIPs come with a minimum lock-in period of 5 years during which withdrawals are not permitted.
Why should NRIs invest in India?
Non-resident Indians have more than one reason to consider investing in their home country. Here’s a quick look at some of them.
- India is among the fastest growing economies in the world. And purchasing investments from banks and financial institutions based in India offers NRIs new investment opportunities coupled with the possibility of favourable returns.
- The Indian financial market also gives NRIs a wide range of investment options to choose from. Right from non-market-linked fixed income alternatives to market-linked options like ULIPs, NRIs have no dearth of choices.
- Investing in India allows non-resident Indians to take advantage of the country’s stock market, particularly through options like ULIPs, which combine the benefits of investment and life insurance. In fact, possibility of returns on ULIP plans are higher when you remain invested for the long term.
- By purchasing investment plans in India, you, as an NRI, can ensure that your investment portfolio is aligned with your life goals for various stages in life. Right from meeting objectives like creating an emergency fund to helping you save for your child’s education, investments in India can be extremely helpful.
Benefits of ULIPs for NRIs?
NRIs who invest in ULIPs stand to benefit in several ways. Here’s a look at some of the advantages of investing in a ULIP scheme.
Life Protection with ULIPs
ULIPs are life insurance plans wherein a part of the premium is used to provide life insurance coverage during the policy tenure. This coverage can provide financial security to your family in your absence.
Access to Market Linked Funds
ULIPs offer different types of market linked funds to choose from. There are equity-oriented, debt-oriented funds and hybrid funds offering NRIs the choice of selecting a market linked fund matching their financial needs. They can also switch between market linked funds (subject to policy t&c) depending on factors such changing preferences, life goals and risk appetite.
Flexibility in Investment Choices
ULIPs offer various flexible benefits like switching, partial withdrawals post the lock in period, top-ups, premium redirections, and more (subject to policy terms and conditions) allowing NRIs flexibility in managing their investments.
Long-Term Wealth Creation Potential
If NRIs choose a long-term policy tenure, they can stay invested over a long term and enjoy compounding ULIP plans returns on their premiums.
Tax Benefits of ULIPs
Additionally, ULIP tax benefits are also aplenty, since you can gain tax-saving advantages on the premium paid as well as on the death or maturity benefits paid out.
Eligibility Criteria for NRIs to Buy ULIPs
If you are wondering – Can NRIs buy ULIPs in India, the answer is ‘yes’. However, there are some eligibility criteria that need to be fulfilled to buy the ULIP. These criteria are as follows -
Valid Indian passport
A valid Indian passport is needed when buying a ULIP.
Age eligibility as per plan
Every ULIP has a minimum and maximum entry age limit to buy the plan. NRIs should meet the eligibility criterion to buy the policy.
Residency status (NRI, PIO, OCI)
The individual should be an NRI, PIO, or OCI to buy a ULIP as a non-resident.
Medical test requirements (if applicable)
In some cases, life insurance companies might require NRIs to undergo a medical test before the policy is issued.
Premium payment modes allowed
NRIs can pay the premium through their NRE or NRO bank account, international credit cards, SWIFT transfers, and other modes.
What are the documents NRIs require to invest in ULIPs in India?
NRIs who wish to invest in ULIPs in India will need to submit a set of documents in order to be eligible for the investment. While the exact list of documents may vary marginally from one insurance provider to the next, these are the proofs generally required to invest in ULIPs subject to underwriting guidelines of the company.
- A scanned copy of your passport that serves as proof of your age and identity.
- A recent passport-sized photograph
- Proof of residence in India
- Proof of residence overseas
- Proof of income as required by the service provider
- Overseas Citizenship of India (OCI) or Persons of Indian Origin (PIO) Card if you are a permanent overseas citizen
- A copy of your PAN card or Form 60, if you possess income that is earned in India
- A Foreign Residency Supplementary Questionnaire for NRIs or PIOs
These documents are required in order to comply with the applicable Anti-Money Laundering and Know Your Customer (KYC) norms.
Key Considerations for NRIs investing in ULIPs in India?
Aside from the documentation requirements, NRIs investing in ULIPs in India should also be aware of other conditions, regulations, and benefits associated with this financial move. Here is some such information that can prove useful when knowing can NRIs buy ULIPs in India –
- Understand the Double Tax Avoidance Agreement (DTAA) between your country and India to avoid double taxation.
- Find the tax implications of ULIPs to plan your taxes effectively.
- Choose a ULIP that helps you create a corpus for your financial goals.
Can NRIs claim tax exemptions by investing in ULIPs in India?
ULIP tax benefits are threefold as per the sections of the Income Tax Act, 1961. The premium paid is deductible under section 80C whereas the claim proceeds are tax-free as per section 10(10D) of Income Tax Act, 1961. And the long-term capital gains from ULIPs are also exempt from tax. NRIs too can enjoy these ULIP tax benefits by investing in India. The above mentioned tax deductions/exemptions are subject to changes in tax laws, as amended from time to time.
How can an NRI pay the premium for investing in ULIPs?
If you wish to invest in ULIPs in India, you can pay your premium through any of the following banking methods.
- Through an Indian bank account
- Through an NRE account or an NRO account maintained with Indian Bank
What modes of payment can be used by NRI investors to pay their premium?
If you’re an NRI investing in ULIPs in your home country, you can pay your premium through any of these options.
- Domestic or international credit cards
- Internet banking
- Debit cards
- Online wallets like PayTM and Google Pay
- Credit Card Standing Instructions (CCSI)
- National Automated Clearing House (NACH)
- Online ECS mandates
Key Takeaways
- NRIs can buy ULIPs in India to enjoy the benefit of life insurance coverage as well as investment in Indian market-linked funds .
- ULIPs offer NRIs life insurance protection, wealth creation, tax savings, and flexibility.
- NRIs have to fulfil some eligibility criteria and submit some documents to qualify to buy a ULIP.
- NRIs can buy ULIPs from abroad and pay premium through their NRE/NRO account, SWIFT transfers, etc.
Conclusion
ULIPs can prove to be a good addition to an NRI’s portfolio given the benefits that these plans can provide. Whether it is life insurance coverage or wealth creation for your financial goals. So, if you are an NRI, assess the benefits of ULIPs, find a plan that matches your needs and buy a suitable plan for your financial needs.
FAQs
Can NRIs buy ULIPs online from abroad?
Yes, NRIs can buy ULIPs online from any country that they stay in. Life insurance companies provide the online mode for buying their plans. NRIs can visit the insurer’s website and buy the policy in a few clicks.
Are ULIP maturity proceeds taxable for NRIs?
ULIP maturity proceeds are tax-free under Section 10(10D) if you buy the policy on or after 1st February 2021 and the premium is up to ₹2.5 lakhs. If the premium is more than ₹2.5 lakhs, the maturity benefit would be taxable.
Can NRI repatriate ULIP maturity amount to their resident country?
Yes, repatriation of the ULIP maturity amount is possible if the premium is paid through the NRE account. If the premium is paid through NRO account, repatriation is allowed up to specified limits.
Is medical examination mandatory for NRIs buying ULIPs?
The requirement of medical examination depends on the insurance company. In some cases, the insurance company might require a medical examination when buying ULIPs.
How are ULIPs different from NRI mutual funds or FDs?
ULIPs are life insurance products which provide insurance coverage along with market-linked returns. NRI mutual funds and FDs allow investment returns but there’s no life insurance coverage.
Sources:
- https://cleartax.in/s/nri-status-and-taxation
