Tax Benefits for NRIs Investing in ULIPs
Here is a detailed overview of tax benefits for investing in ULIP for NRI plans:
Tax Benefits on ULIP Premiums
All NRIs and Indian citizens opting for the ULIP plan are subjected to tax exemption on the premiums paid. Under Section 80C of the Income Tax Act, NRIs are allowed for a deduction of Rs. 1.5 Lakhs on the premium paid. However, if the ULIP premium is upto Rs 2,50,000 and is equal to or less than 10% of the sum assured, NRIs are eligible to claim exemption on maturity benefit. under Section 10(10D) of the Income Tax Act, 1961.
Tax Benefits on Death and ULIP Maturity
NRIs can avail exemption of taxes on death benefits on sudden demise of the policyholder while holding the ULIP policy, applicable under Section 10(10D) of the Income Tax Act.
For maturity, NRIs enjoy the benefits of taxes, subject to the provisions mentioned below:
- For plans issued on or after February 2021, on maturity, NRIs can avail of tax benefits only when the total premium paid is equal to or less than Rs. 2.5 Lakhs in any of the previous years till the policy term exists.
- For ULIP plans purchased before February 2021, NRIs can avail tax exemptions only if the premium is less than 20% of the sum insured
On the other hand, if the premium annually is more than Rs. 2.5 Lakhs, there will be capital gains tax. This applies however on the ULIPs purchased after February 1, 2021.
Under any unforeseen circumstances, if any NRI withdraws the ULIP policy before the lock-in period of 5 years, the amount surrendered gets added up with the annual taxable income of the NRI and following the slab rate is subjected to taxation. However, if the ULIP policy is surrendered after 5 years, there are no charges applicable.
Furthermore, NRIs face double taxation for which their overall income is affected. The income tax applicable to NRIs is however much greater compared to Indian permanent citizens. Thus, to avoid paying double taxation, it is mandatory to go through the Double Taxation Avoidance Agreement (DTAA). With many foreign countries, India has tied up with DTAA, where an NRI can claim exemption from paying taxes in any one of the two nations.