For Non-Resident Indians (NRIs), life insurance policies in India offer valuable tax-saving opportunities, financial security, and investment benefits. However, tax rules on life insurance for NRIs differ from those for resident Indians, with specific guidelines on premium deductions, exemptions, and double taxation agreements.
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Therefore, it is suggested that you refer to your financial advisor to get a clear view of the NRI tax benefits on life insurance plans purchased in India.
Term Plans
NRIs can claim tax deductions up to ₹1.5 lakh under Section 80C on life insurance premiums for policies that cover themselves, their spouse, or children. This deduction applies to investments in various financial instruments, including life insurance policies, Unit Linked Insurance Plans (ULIPs), and other qualifying instruments. However, it is better to check with your financial advisor about the applicability of these sections to your premiums.
Proceeds from life insurance policies are generally tax-exempt under Section 10(10D) of the Income Tax Act. However, starting from the 2023-24 financial year, policies with an aggregate annual premium exceeding ₹5 lakh (excluding ULIPs) have become taxable if purchased after April 1, 2023. Importantly, death benefits under these policies remain fully tax-exempt, regardless of the premium paid.
As per the 2021 update, gains from ULIPs with an annual premium above ₹2.5 lakh are subject to capital gains tax. Lower-premium ULIPs, however, maintain their tax-exempt status, similar to traditional life insurance policies.
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For an NRI to be eligible for life insurance in India, they must meet certain residency requirements, as defined under the Foreign Exchange Management Act (FEMA). Broadly, NRIs are individuals who reside outside India but retain Indian citizenship, or people of Indian origin who satisfy specific conditions. NRIs must also provide residency documentation (such as passport and address proof) and may face additional requirements if residing in certain high-risk countries.
NRIs around the world have access to various types of life insurance policies in India, including:
Term Insurance: Provides financial protection for a specified term, with payouts only upon death, making it ideal for temporary coverage.
Whole Life Insurance: Offers lifelong coverage and savings, allowing cash value accumulation.
Endowment Plans: A blend of insurance and investment, paying a lump sum upon maturity or death, which can serve as a retirement corpus.
The NRIs can get an 18% GST waiver on the premiums paid via NRE (Non-residential External) accounts that support freely convertible currency. This allows NRI customers to further save on their premiums and buy affordable term life insurance plans.
NRIs should be aware of the ₹5 lakh annual premium limit for tax-free maturity benefits. If the aggregate premium on multiple policies surpasses this threshold, only the policies below it will retain tax-exempt maturity benefits. Monitoring premium contributions helps NRIs avoid tax liabilities on maturity proceeds and ensure continued tax savings.
Check Policy Tenure and Premium Limits: It is advisable for NRIs to choose policies with premiums within the tax-exempt limits to avoid maturity tax liabilities.
Consult Tax Advisors: Changes in tax rules frequently affect NRIs. Consulting with tax professionals ensures compliance with current regulations and optimizes tax savings under Indian and international tax laws.
Choose Policies Aligned with Financial Goals: With options like term, whole life, and endowment policies, NRIs should select plans that align with their long-term goals, considering factors like premium payment flexibility, policy duration, and cash value growth for ULIPs or endowment policies.
Life insurance offers NRIs a solid way to save on taxes while securing their family’s future, but understanding the latest rules is essential. By staying within premium limits, exploring tax-saving sections like 80C, and keeping updated with the latest tax laws, NRIs can maximize both savings and benefits. Staying informed and seeking professional advice can make the process easier, allowing you to confidently use life insurance to meet your financial and family goals, no matter where you live.
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
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