As far as investment in India is concerned, NRIs can very much invest in ULIPs as per the Foreign Exchange Management Act (FEMA). They are considered as among the most popular options for NRIs who wish to invest their funds.
Sudheer is a UK-based NRI, with parents living in India. He is looking at investment options in India and is wondering if as an NRI, he is eligible to invest. He is also unclear on what product to invest in. As he asks fellow Indians in his community for advice, and goes online to look at options, ULIPs stand out as an interesting choice. But his dilemma is that he is an NRI -- can he invest in ULIPs, and if so, what are the features of ULIPs?
Before Sudheer goes about understanding what ULIP for NRI category means, it helps to define what being an NRI means in terms of investments. According to India’s taxation laws, an NRI is
- Someone who has not resided in India for six months or a minimum of 182 days in that particular tax year. These individuals could be citizens of India or PIOs (Persons of Indian Origin).
A person is not considered an NRI if:
- They visited and stayed in India for 60 days of the year in the earlier tax year or have lived in India for a full 365 days over the previous four years, you will not be considered an NRI.
Now that Sudheer is clear on his eligibility to invest in ULIPs, he now sets out to understand what ULIP for NRI means, and what does he stand to gain.
The acronym ULIPs stands for unit linked insurance plans. Such plans offer a double benefit: insurance cover and investment options. It is best to assess one’s financial situation and goals, before picking a plan. ULIPs are the perfect tools for those who believe in thinking about the long-term. Typically, the lock-in period for ULIPs is five years.
The emphasis before picking a ULIP is on the financial goal of the person and the coverage they wish to provide to family members. Goals can vary; a person could be looking at investing for retirement or wealth creation for a specific life event.
What are the tax benefits available?
An NRI also gets a tax deduction for returns on ULIPs, much like Indian citizens under Sec 10(10d). This is because ULIPs are considered an insurance policy apart from an investment product. But if the premium that needs to be paid is more than 10 per cent (or the percentage prescribed for specific cases) of the sum assured, then, the returns may be taxable.
NRIs can also claim tax benefits under section 80C of the Income Tax Act, 1961, on the premiums paid.
How does an NRI apply/buy a ULIPs plan?
After opting for the right ULIP for NRI based on financial goals and risk profile, the person can apply online without any hassle. A scanned passport copy is a prerequisite. Also required are address proof, income proof, an OCI or PIO card as part of KYC norms.
The premium can be paid online, via the person’s bank account. NRIs can have a Non-Resident Ordinary Rupee Account (NRO) or a Non-Resident External (NRE) account where they can park their income earned from India or from abroad, respectively. The premium can be paid via these accounts or through foreign currency remittance. This depends on the denomination in which the ULIP plan is issued to the policyholder. If it’s in Indian Rupee, then the premium has to be paid via an NRO account. The payouts will also follow the same logic.
NRIs should also check the taxation laws in their own countries to ensure that they don’t end up paying taxes on their investments and insurance cover in India.
Summing up, a ULIP plan is a good fit for NRIs who are looking at both investing and protecting the interests of their families. NRIs looking at investing in India can choose Future Generali Big Dreams Plan based on their financial goals and necessities. All plans allow for switching between available funds as when the investor chooses to do so, based on changing financial necessities. Accidental death or critical illness rider options for additional coverage for the investor’s loved ones and dependents are also available.