Equity Linked Savings Scheme (ELSS) is the most preferred tax-saving option for most tax payers because of the shortest mandatory lock-in period and its potential to offer superior returns. Even for Non-Resident Indians (NRIs), it works out as the best option, say investment experts.
Unlike ordinary resident Indian tax payers, NRIs have some limitations when it comes to investing to claim tax deductions under Section 80C of the Income Tax Act.
“NRIs cannot open a new PPF account or make a new investment in NSC,” says Abhinav Gulechha, a SEBI Registered Investment Advisor (RIA). NRIs can continue with their old investments in NSC and continue to invest in their old PPF account if it was opened before they acquired NRI status.
That means the other investment option available for NRIs is five-year tax-saving fixed deposits from banks. Tax-saving fixed deposits offer around 6.0-7.0 per cent per annum. The interest earned is taxed at the income tax slab applicable to the person. A person in the highest tax slab will have to part with a little over 30 per cent from the paltry interest they get from these deposits.
NRIs are free to buy Unit Linked Insurance Plans (ULIPs) or traditional life insurance policies and claim tax breaks under Section 80C. However, these are not pure investment products. They are essentially insurance products with saving or investment elements in them. That is why investment experts do not recommend investing in these products to save taxes. “I don’t recommend ULIPs or life insurance policies for investment,” says Puneet Oberoi, a certified financial planner based in Delhi.
ELSSs have a lock-in period of three years and the long-term capital gains above Rs 1 lakh are taxed at 10 per cent. Since ELSSs invest in stocks, they also have the potential to offer superior returns than other asset classes over a period of time. ELSS category has returned 11.02 per cent in the last three years and 19.35 per cent in five years.
It is not a difficult task to invest in ELSS even if you are not residing in India. KYC details should be provided as the first step. “You need to submit an address proof of the country you reside in, along with a copy of a legitimate document like VISA,” says Saurabh Mittal, a mutual fund advisor based in Mumbai.
Most of the fund houses allow you to fulfil the KYC requirements online. In-person Verification (IPV) requirement can be fulfilled through a video call and you can send in the hard copy of the required documents through courier. Once you have completed the kyc process, you can log in to the AMC website for making the investment. Alternatively, you can take the help of your mutual fund distributor to complete the KYC process and for the investment in ELSS.
It might be slightly difficult for NRIs from the US and Canada to invest in MF schemes as some fund houses have stopped accepting payments due to FATCA and US Securities Exchange Commission regulations. But there are AMCS like UTI AMC, PPFAS Mutual Funds, Sundaram AMC, DHFL Pramerica AMC, among others who have started accepting investments from NRIs from the USA and Canada.
FAQs
Equity Linked Savings Scheme (ELSS) is the most preferred tax-saving option for most tax payers because of the shortest mandatory lock-in period and its potential to offer superior returns. Even for Non-Resident Indians (NRIs), it works out as the best option, say investment experts.
Should NRI invest in ELSS? ›
Equity Linked Savings Scheme (ELSS) Mutual Funds are the ultimate tax-saving tool for NRIs like you! With ELSS, you can not only grow your wealth but also claim hefty tax deductions – potentially saving you lakhs of rupees!
Does investment in ELSS have tax benefit? ›
ELSS mutual funds provide tax deductions of up to Rs 1,50,000 a year under the provisions of Section 80C of the Income Tax Act, 1961. This helps you save up to Rs 46,800 a year in taxes. However, note that your investments are locked-in for three years from the date of investment.
How to save tax in India for NRI? ›
An NRI can claim a standard deduction of 30%, deduct property taxes, and benefit from an interest deduction from a home loan. The NRI is also allowed a deduction for principal repayment under Section 80C.
Is PPF or ELSS better for tax savings? ›
So, ELSS and PPF are tax-saving options with different advantages. ELSS might be better for those wanting higher returns & are willing to take more risk, whereas PPF provides stability and security for long-term savings. A smart investing choice could be to diversify your investment and get the best of both.
Who should not invest in ELSS? ›
You want short-term gains
Chasing quick returns through ELSS funds might not always work, and hence, you should not invest in ELSS funds if you want returns quickly. ELSS funds may be suitable for you only if you have a longer investment horizon.
What are the disadvantages of ELSS? ›
Disadvantages of ELSS funds
- Higher risk. THE RISK IS ALSO HIGHER since ELSS funds are directly linked to the equity market. ...
- ELSS Liquidity. ELSS mutual funds offer limited liquidity. ...
- Not an option for risk-averse investors. ...
- Limited benefits. ...
- Management cost.
ELSS investments held for more than three years are considered Long-Term Capital Assets and any gains from redemption are subject to Long-Term Capital Gains Tax (LTCG) at a rate of 10% on gains exceeding Rs 1 lakh.
Are returns from ELSS tax-free? ›
Since ELSS funds are locked up for three years, there is no way to realize short-term profit gains. As a result, you can only realize long-term capital gains. These gains are tax-free up to Rs 1 lakh per year, and any earnings beyond this amount are subject to a 10% long-term capital gains tax.
Can I invest in 2 ELSS funds for tax saving? ›
Yes it will be advisable to invest more than 2 elss fund for tax deduction and wealth creation but you will be get only tax deduction up to 1.5 lakh only .
Navigating Through NRI Tax Slabs
| NRI Income Range in India | Tax Rate |
|---|
| Upto 2.5 lakh | Nil |
| 2.5 lakh to 5 lakh | 5% |
| 5 lakh to 10 lakh | 10% |
| Above 10 lakh | 30% |
Rules Implemented
NRIs are mainly Indian citizens residing abroad and persons of Indian origin who visit India for less than 182 days in the whole financial year. But as per new income tax rules, the government reduced the tenure from 182 days to 120 days for all those NRIs whose annual income exceeds Rs 15 Lakhs.
Does OCI pay tax in India? ›
As a non-resident, your global income is typically not taxable in India. However, any income earned within India is taxable. This rule applies to OCI cardholders as well. They are treated as non-residents for tax purposes, meaning the rules for non-residents apply to them too.
Which is better between NPS and ELSS? ›
NPS carries lower market risk due to its diversified portfolio, providing stability, but it may offer comparatively lower returns over time. ELSS has the potential for higher returns but comes with higher market risk due to its equity exposure, offering the chance for greater wealth accumulation.
What is the average return on ELSS? ›
In a five year and 10-year horizon, the ELSS category offered an average return of 18.50% and 17.05% respectively. “ELSS funds have the capacity to yield returns surpassing those of simple savings schemes.
Is ELSS high risk? ›
These funds do not offer guaranteed returns as they are high-risk-return investments investing in market-linked instruments and depending on the performance of underlying securities. However, if invested for the long term, they can beat market instability to offer good returns to the investors.
What is the best investment for NRI in India? ›
Here are some of the low-risk best investment plans for NRIs and OCIs:
- Child Plans. ...
- Corporate Fixed Deposits (FDs) or Non-Convertible Debentures (NCDs) ...
- Public Provident Fund (PPF) ...
- Money market instruments. ...
- Perpetual Bonds. ...
- PSU (Public Sector Undertaking) Bonds. ...
- Sovereign Gold Bonds (SGBs) ...
- Bharat Bond ETF.
Non-resident Indians (NRIs) often seek investment opportunities in India to secure financial stability for themselves and their families. The Indian market, known for its diverse investment options such as equities, mutual funds, fixed deposits, and debt funds, offers a promising avenue for wealth creation.
Does ELSS give better returns? ›
Both ELSS and ULIP can generate returns based on market performance. Still, ELSS is a pure investment option that produces higher returns than ULIP, which combines investment and insurance. Therefore, evaluating your investment needs and risk appetite is essential before choosing between these options.
