GST Waiver on Term Insurance for NRIs

As a Non-Resident Indian (NRI), getting a term insurance plan is a wise decision to secure your family's financial future back in India. However, buying a term plan in India comes with an additional cost i.e. Goods and Services Tax (GST) at 18%. Currently, the Indian Government offers NRIs a special GST waiver of up to 18% on premiums of term insurance plans purchased from an Indian Insurer. 
Let’s understand how you can get a GST waiver for NRI on insurance premiums and save money with annual premium payments. 

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Understanding GST on Term Insurance for NRIs

The Goods and Services Tax (GST) is a type of indirect tax that has replaced a number of indirect taxes that existed in India like VAT, excise duty, service tax, etc. It is called a destination-based tax, which simply means it is levied when you purchase a product or service. The current GST rate on term life insurance plans in India is 18%.

As an NRI, if you buy a term plan in India, you will be required to pay GST on the term insurance premium amount. The GST amount is added to the premium, and the total amount is paid by the policyholder.

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What is a GST waiver for NRIs in India?

According to the new changes in the Reserve Bank of India’s guidelines regarding Foreign Exchange Management, the premium amount paid using an NRE account will be eligible to claim GST Waiver. This means when an Indian expat or an NRI buys a term insurance plan from an Indian Life Insurance company, he/she becomes eligible to avail of a GST waiver for NRI on insurance premiums paid to keep the policy active, resulting in a saving of 18% on their premiums.

How to Get a GST Waiver for NRI Term Insurance?

NRIs can get a GST waiver on term insurance plans. Here’s how:

  1. Buy Term Plan through an NRE Account

    In order to get a GST waiver on term plans, NRIs should buy the plan through a non-residential external (NRE) bank account. The premium amount must be paid in Indian currency, and the plan must be issued to NRIs' foreign addresses. This way, the plan will be treated as an export of products and will be exempted from GST.

  2. Submit the Required Documents

    NRIs are required to submit certain documents:

    • NRE Bank Statement and

    • Address Proof

    These documents are necessary to verify the status and eligibility to avail GST waiver for NRI on insurance premiums.

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How Can NRIs Claim GST Waiver After Buying Term Insurance?

Many people are unaware of the GST waiver for NRI on insurance premiums and buy term plans without GST deductions. However, people who were unable to claim an NRI term insurance GST waiver for NRI on insurance premiums before buying the plan can claim a refund as per the prevailing tax laws by submitting the required documents.

Benefits of Getting a GST Waiver on Term Insurance for NRIs

Getting a GST waiver on term insurance can provide several benefits for NRIs. Here are some of them:

  1. Reduced Premium Amount

    By getting a GST waiver on term insurance, NRIs can significantly reduce the premium amount. The 18% GST on term plans can add a considerable amount to the premium, which can be saved by getting a GST waiver.

  2. Better Financial Planning

    With a reduced premium amount, NRIs can plan their finances better. They can allocate the saved amount towards other savings or investments, which can provide better returns in the long run.

  3. High Cover Amount

    By saving on the premium amount, NRIs can opt for a higher coverage amount on their term insurance plan. This can provide better financial protection for their family in case of an unfortunate event.
    NRI customers often find the process of paying premiums daunting as they have to submit their bank statements and address proof every time they pay their premiums on a monthly basis. This is why experts suggest NRIs pay their premiums in an annual mode to decrease their premium payment stress.

Why is Annual Premium Mode More Beneficial For NRIs?

Let us take a look at the benefits of buying a term insurance plan for NRIs on an annually payable premium payment mode.

  • Hassle-free Premium Payment Process: Annual premium payment modes allow the customer to pay their premiums in a hassle-free manner. Though, the same benefit is applicable on monthly mode also, if in case the customer sets up an auto-debit on it. But the worry of making the premium payment every month goes away when one is paying on an annual basis.

  • GST Waiver: As discussed above, term plans give NRI customers a chance to claim up to 18% of GST waiver for NRIs on insurance premiums paid using a non-residential bank in freely convertible currency.

  • Submitting GST Waiver Documents: To pay the premiums online, the NRI needs to submit the GST waiver documents like an NRE bank statement showing deduction and international address proof, every time he/she tries to make a premium payment. In annual mode, the NRI has to undergo the hassle of attaching documents only once every year rather than regularly on a monthly or quarterly basis.

  • Get Extra Discounts in Annual Mode: An NRI customer can claim an extra discount of 5% on the premiums paid in an annual mode instead of any other mode. This, along with the GST waiver provides the NRI customers with a total savings of 23% on the overall premiums paid.

  • Less chance of Policy Lapsation: Paying the premiums in an annual mode reduces the chances of policy lapsation as the hassle of remembering and paying the premiums within the due date is removed.

Final Thoughts

Term insurance is a financial product that offers both long-term security and tax-saving benefits at an affordable premium rate. For NRIs especially, it is an important tool to protect their loved ones back home in India, while they live in their new country of residence. NRIs can not only avail of the above-mentioned benefits but also get an 18% GST waiver along with a 5% additional discount on the annual premium payment mode for their term insurance plans.


FAQs

  • Q: What are other tax benefits available under NRI term insurance?

    Ans: Apart from the GST waiver for NRI on insurance premiums, you can also claim tax benefits under Sections 80C and 80D on the premiums paid and under Section 10(10D) on the benefits received as per the prevailing tax laws.
  • Q: Can an NRI buy term plan in India after becoming a US citizen?

    Ans: Yes, people who have converted from being an NRI to a US citizen can still purchase term insurance for NRI from India as long as they have the required documents like PIO or OCI cards.
  • Q: Can NRIs nominate beneficiaries outside India?

    Ans: Yes, NRIs can nominate beneficiaries outside India as well.
  • Q: Will the term insurance for NRI cover my nominee if he/she changes country?

    Ans: Yes, the NRI term insurance will still cover the nominee if he or she changes their residential country.
  • Q: Who is eligible to claim a GST waiver for NRI on insurance premiums?

    Ans: The following people are eligible to buy term insurance for NRI in India:
    • NRIs (Non-Resident Indians) - People who live in other countries but are Indian citizens
    • PIOs (Persons of Indian origin)/OCIs (Overseas Citizenship of India cardholders) -People who have held Indian passports in the past, or people who have a
      • Spouse who is an Indian citizen or
      • Parents or grandparents who are Indian citizens
    • Foreign Nationals - People who are not Indian citizens but live in India
  • Q: What are the benefits of buying term insurance for NRI from India?

    Ans: The benefits of buying NRI term insurance are as follows:
    • Premiums up to 50-60% lower than international term life insurance plans
    • Pre-approved cover up to 2 crores without the hassle of medical tests
    • Get worldwide cover with claim assistance available 24/7
    • In case of plans requiring medical tests, the costs are borne by the insurer
    • Schedule and clear medical tests online via tele or video calls for cover up to 5 Crores
    • Choose from a variety of insurers on the basis of CSR and claim settlement process
    • Get 18% GST waiver for NRI on insurance premiums and save an additional 5% discount in annual mode

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