5 instruments to help you save tax even as an NRI: As a non-resident Indian, you must be aware of how complicated maintaining your finances is. Because juggling finances in one country is bad enough; you are required to do it in two countries! Which means, you must not only carefully plan your finances abroad but also ensure that you are doing everything right in India.
Moreover, as an NRI, numerous things change according to your residential status, and one of those things is ‘Tax Rules Applicable to Investments in India’. If you are worried about investing in India, thinking you may not receive similar tax benefits as fellow residents, don’t be! There are many investment options designed to help you gain maximum tax benefits, even if you are an NRI.
So, if you are constantly pondering on this thought- “how to save tax in India”, here are five investment options to help you with the same:
- Term insurance
Term insurance is a type of life cover which provides financial assistance to the insured’s family, by paying a death benefit, if s/he expires during the term of the policy. However, apart from providing the financial safety net to your loved ones, term insurance also acts as an excellent tool to save taxes every year.
NRI’s are allowed a deduction of Rs. 1.5 lakhs on premiums paid towards term insurance plans. This deduction can be claimed if the term plan is purchased in your name or in the name of your child or spouse. However, in order to claim this deduction, the premium paid must be less than 10 percent of the sum assured.
- Unit Linked Insurance Plans (ULIPs)
If you want to avail tax benefits through a single product that caters to your investment as well as insurance needs, ‘Unit Linked Insurance Plan’ is the product you should be looking for. When you invest in ULIPs, a part of your premium is invested in funds like equity and debt (based on your risk-appetite), and the other part is utilised towards providing you with the life cover. Moreover, you can switch between funds based on your changing life goals or prevailing market conditions. Private insurers like Future Generali allow twelve free switches each policy year.
Similar to other life insurance plans, the premium paid towards ULIPs is available for tax deductions as per Section 80C, wherein the maximum tax deduction allowed from your taxable income is Rs. 1.5 lakhs.
- Equity Linked Mutual Fund Schemes
An Equity Linked Savings Scheme, popularly known as ELSS, is a diversified mutual fund having majority of its savings invested in equities. As it is an equity-based investment, returns from an ELSS reflect returns from stock markets, which can make it somewhat risky.
Its core benefit is that it doesn’t just give NRIs an opportunity to grow their money by investing in Indian equity market but also help them save tax since ELSS are qualified for tax exemptions under Section 80C. Meaning, you can claim a deduction up to Rs. 1.5 lakhs from your total income in a financial year. Additionally, long-term capital gains from ELSS funds are also tax-free.
- National Pension Scheme
If you are strong-minded about retiring in India, then you can go for the investment option known as the ‘National Pension Scheme’ (NPS). NPS is a low cost, tax-efficient and flexible retirement savings account.
NRIs are allowed to invest in NPS under Foreign Exchange Management Act, wherein they can invest in a mix of debt and equities and save for their golden years. The benefits that you receive depend on the contributions made, the period of contributions, and the returns generated. NRIs can contribute to NPS from their NRE and NRO accounts.
Contributions to National Penson Scheme qualify for tax deductions under Section 80CCD, wherein:
- 10 percent of the total income contributed to NPS is eligible for a tax deduction up to Rs. 1.5 lakhs (As per 80CCD (1))
- You can also claim an additional deduction up to Rs. 50,000 (As per 80CCD (1B)), adding up the total deduction benefit to Rs. 2 lakhs
- Health Insurance
NRIs can invest in health insurance and claim deductions for the premium paid towards the same. The deduction is available up to Rs. 50,000 for senior citizens and up to Rs. 25,000 for insurance of self, dependent children and spouse.
NRIs can additionally claim a deduction for health insurance of their parents up to Rs. 50,000 if the parents are senior citizens, and Rs 25,000 if the parents are not senior citizens. Also, within the existing limit a deduction of up to Rs. 5,000 for preventive health check-ups can be availed.
If you are looking to invest in any of the above instruments, make an informed choice based on the following points:
- In addition to the country of your residence, understand the tax laws in India.
- Select those tax saving instruments which would enable repatriation of income at maturity.
- Your investment decision should not just be based on your tax planning needs, but also your life objectives.