An Individual can avail tax benefits by investing in certain investment products under various section like Section 80 C, 80 CCC and 80 CCD(1). There is an overall limit of Rs. 1.50 lakhs for availing tax benefits as provided under Section 80 CCE. These products cover various investment products including contribution to National Pension System (NPS) account. Additionally Section 80 CCD(1B) allows a further deduction of Rs. 50,000/- towards contributions made to your NPS account.
Some of the products are available for investments to only resident and some only to Indian Citizens. Let us discuss whether you as an NRI can make investment in these products. These restrictions are not specified under the Income Tax Act but are specified under respective schemes/regulations.
Both the PPF and NSC entitle you to claim tax benefits under Section 80 C with other eligible items. Only a person who is resident of India under FEMA can open a PPF account so non resident under FEMA regulations can not open the PPF account. However in case you become a non resident any time after having opened the PPF account, you are not required to close the account immediately. So even if you become a non resident, you can continue to have the PPF account. You are also allowed to contribute in your existing PPF account. However once the initial period of 15 years is over, you are not entitled to exercise the option to extend the PPF account for further period of 5 years which a resident Individual can. The maturity proceeds received on completion of 15 years are also not fully repatriable and thus have to be deposited in your Non Resident Ordinary (NRO) Account only and can not be deposited to your Non Resident External (NRE) Account. However you are allowed to remit up to 10 lakhs US $ every year subject to compliance with prescribed procedure. Non resident under FEMA are not allowed to invest in any small saving schemes including NSC as well.
National Pension system (NPS)
Section 80 CCD allows you certain tax benefits whether self employed or salaried and the tax benefits are available on your own contribution as well as on your employer’s contribution (In case you are salaried). An NPS account can only be opened by an Indian Citizen. So even if you have become a non resident under FEMA regulations but are holding Indian passport, you can still open the NPS account and avail various tax benefits under Section 80 CCD. It is interesting to note that even though the foreign citizen who are working in India and therefore are resident under the income tax laws can not open the NPS account and avail the tax benefits prescribed. Though for Non Resident Indians (NRI) definition even Person of Indian Origin (PIO) are also treated as non resident under FEMA but since they do not have Indian Passport can not open the NPS account.
Though the Indian Tax laws, whether banking or taxation laws, have no restrictions on NRI residing abroad on making investments in Indian Mutual Funds schemes including ELSS, some of the Mutual Fund houses do not allows investment to be made by resident of countries like US and Canada. So in case you are not tax resident of these countries you can still invest in ELSS and avail tax benefits
Buying in Insurance and Pension plans
There are no restriction on non residents Indian buying insurance policies or pensions plans from Insurance Companies Registered in India so non residents can buy life insurance or pension products from Indian Insurance Companies and avail the tax benefits.
From the above discussion it becomes clears which investments avenues are available to a non resident for his saving his tax liability in India.
(The author is a CA, CS and CFP. He can be reached at jainbalwant at gmail.com and @jainbalwant)
By Balwant Jain (CA, CS and CFP)The author is a CA, CS and CFP. Presently working as Company Secretary of Bombay Oxygen Corporation Limited. Views are personal., He can be reached at firstname.lastname@example.org and @jainbalwant