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Best Tax Saving Options for NRIs in A.Y. 2018-19

As an NRI, you are qualified for tax exemptions on specific investments in India

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  • NRIs are supposed to pay taxes to India as well
  • There are tips for this tax saving
  • NRIs can use many methods to save taxes

Non- Resident Indians (NRIs) are supposed to pay taxes on income earned in India during a particular financial year. So, any income that has been either accrued or received in India shall form part of the taxable income of NRI. If you have recently moved abroad, you may be worried about ensuring your tax compliance in India for the assessment year 2018-19. Moreover, you need to do tax saving in India with twofold goals- decrease tax liability and increase return on investments. While tax saving is essential, you should strive to invest prudently to reap the maximum benefit of the savings.

These simple tips will help NRIs in tax saving.

If you are an NRI and searching for investment options with tax saving benefits, you should realise that there are various options for the same. Take a look at these tax saving options for NRIs in A.Y. 2018-19:

Bank Deposits

For money to be parked for short-term or long-term investments, NRI can have any one of three following types of banks accounts:

  1. Non-Resident External Rupee Account (NRE): In this type of account, your funds in foreign currency are converted into Indian rupees and the rate prevailing at the time of conversion is applicable. The benefit here is-Interest earned on NRE account is exempt from tax for an individual who qualifies as a ‘person resident outside India’ under the exchange control law.
  2. Non-Resident Ordinary Rupee Account (NRO): Interest earned on NRO account (savings or fixed) is fully taxable. A deduction up to Rs 10,000 may be claimed for interest earned on savings account while filing the tax return.
  3. Foreign Currency Non-Resident Bank Deposit (FCNR): It is a term deposit or fixed deposit account, where NRIs can deposit their money in foreign currency. The deposits canbe made for a minimum maturity period of one year and maximum maturity period of 5 years. The interest earned under this account is tax-free, whereas the principal amount is taxed under wealth tax.

    Opening bank deposits can help save taxes. ecointersect.com

Other popular means of claiming a deduction from gross total income is via Section 80C.

Deductions Under Section 80C

Term Insurance

NRIs can invest in term insurance, a type of life cover, which provides financial coverage to the insured. If the insured expires during the tenure of the policy, then death benefit is payable to the nominee. A deduction of Rs 1.5 lakh is allowed for the premium paid towards term insurance plans as per Section 80C. This deduction can be claimed where the plan has been purchased in the NRI’s name or the name of his/her spouse. Moreover, purchasing online insurance plans like term plans has turned out to be simple, hence you can easily go for these online insurance plans and avail tax benefits on the premium payable.

Unit Linked Insurance Plans (ULIPs)

Unit Linked Insurance Plans offer duals benefits of life insurance and investment. Some part of the premium is utilised as insurance coverage to the policyholder, while the remaining amount is invested in various debt and equity schemes. As with all life insurance plans, the amount invested in a ULIP is available for tax deductions for NRIs.

Subject to certain conditions, the premium paid for ULIPs is allowed as a deduction under Section 80C of the Income Tax Act. ULIP premium can be deducted from your taxable income up to Rs 1.5 lakh, which is currently the permissible limit.

Loan to Buy a Home

Buying a house property is beneficial for you (NRI) as the interest income and principal income will allow for a tax rebate. The total deduction for interest payment on home advances is Rs 1.5 lakh, whereas the principal amount repayment on home loan already qualifies for a tax rebate of Rs 1 lakh.

Equity Linked Mutual Fund schemes (ELSS)

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Loaning a house can help save taxes for NRIs. Pixabay

For NRIs, ELSS also offers similar benefits under Section 80C of the Income Tax Act. ELSS are equity-linked mutual fund schemes investing in a diversified portfolio of Indian stocks. ELSS schemes can be purchased online, yet remember, there is an element of risk in ELSS as money is put into equity markets. Be that as it may, they are tax efficient instruments for NRIs.

National Pension Scheme (NPS)

You can subscribe to NPS if you have retained your Indian citizenship and planned to retire in India. You can contribute to NPS from NRE and NRO accounts. However, the pension needs to be received in India only and cannot be repatriated. Your investment up to 1.5 lakh can be used to avail tax deductions.

NPS comes under EET tax structure (Exempt-Exempt-Tax) and is a cost-effective, government-backed retirement savings plan. All the contributions and accrued capital gains are exempt from tax; however, withdrawal is subject to tax.

Also Read: Rich NRI Keralites Seek State-of-the-Art Old Age Homes to Ensure Stress-Free Life for their Aged Parents

Other Allowable Deductions:

Health Insurance- Deduction under Section 80D

NRIs can take health insurance from Indian companies for themselves or their family members and claim a deduction for the premium paid under Section 80D. Additionally, health plans like cancer insurance plans serve as monthly income plan with different payout options made available upon diagnosis of the disease. The availability monthly income plan feature offers a comprehensive financial coverage for the life assured as well as his family.

The deduction for health insurance is up to Rs25,000 for insurance of self. You can claim a deduction for insurance of parents up to Rs30,000 if their parents are a senior citizen (above 60 years) and Rs25,000 if the parents are below 60 years.

Education Loan- Deduction under Section 80E

Like resident Indians, NRIs can also take educational loans and claim tax deductions on the interest paid under section 80E. This loan might be either taken for higher education for self, spouse or children.

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Saving money by saving taxes now becomes easy for NRIS with these tips. Pixabay.

Besides, there is no limit on the amount which can be claimed as a deduction, and deduction is offered for a maximum of eight years or till the interest is paid, whichever is earlier.Additionally, no deduction is allowed on the principal repayment of the loan.

Conclusion:

As an NRI, you are qualified for tax exemptions on specific investments in India. Before investing, you should make an informed choice by understanding tax laws in India, in addition to the nation of your residence. Moreover, you must select tax saving instruments which would enable repatriation of income at maturity. Your investment decisions should consider your life objectives and also repatriation restrictions on investments in India.

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Guest Column: Monetary ‘Teasing’ and Fiscal Expansion

Private Estimates in this regard are between 0.2 - 0.4 per cent shy of the governments estimate

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Fiscal Expansion
Unexpected corporate tax cuts alongside previous measures announced over the last few days by the government amount to a total fiscal expansion of around 0.8 per cent of GDP at face value. Pixabay

The unexpected corporate tax cuts alongside previous measures announced over the last few days by the government amount to a total fiscal expansion of around 0.8 per cent of GDP at face value. That said, private estimates in this regard are between 0.2 – 0.4 per cent shy of the governments estimate.

Here are the growth, monetary policy, and bond market aspects of the move:

Growth
With this the government has shown a clear commitment to shore up growth even with its back against the wall, fiscally speaking. Further, it has resisted an easy consumption stimulus which may have had very little multiplier effects and possibly may have eventually contributed to some macro-economic imbalances. Rather, the tax cuts will help improve corporate profits and hopefully improve our global competitiveness. Further, incentives for new units announced may also help with attracting some of the global supply chains reallocations that are underway given escalating trade tensions.

This may, however, not necessarily be a substantial shot in the arm for near-term growth prospects. The tax cuts may be used in a variety of ways, including stepping up investments, reducing debt, cutting product prices, increasing salaries, buyback and dividends, among others.

All told, the immediate pass-through and growth impulses created may be not as strong and thus the tax buoyancy hoped for on the back of stronger growth may have to wait for a while. This is especially true as general competitiveness in an increasingly challenging world requires other aspects of factor input efficiencies to fall in place as well.

Fiscal Expansion
Fiscal policy for fiscal expansion has indeed chosen to step up to the plate, then monetary policy need not be as aggressive. Pixabay

Monetary policy
Prima facie, if, unlike earlier expectation of limited further space, fiscal policy has indeed chosen to step up to the plate, then monetary policy need not be as aggressive, all else being equal. That said, the global and local context is weak enough to argue for yet some (though not substantial) incremental role for monetary easing. This is especially true because RBI Governor Das doesn’t appear to be as large a fiscal hawk, currently (indeed welcoming the bold step from the government, after observing one day prior that fiscal space seemed limited).

We would hence look for monetary “teasing” incrementally, as opposed to “easing” that we were expecting before and would expect the repo rate to bottom out in the 5 to 5.25 per cent area. The one caveat to this view is of further global growth deterioration which would then open up room for further easing, whereas liquidity policy is expected to remain one of substantial surplus.

Fiscsal Expansion
Government has shown a clear commitment to shore up growth even with its back against the wall, towards Fiscal Expansion. Pixabay

Bonds
As noted, before term spreads have been quite wide for this part of the cycle, largely reflecting the inadequate availability of risk capital versus the supply of bonds (the same inadequacy is being reflected as higher credit spreads in the loan and credit market).

Despite more than adequate liquidity now, risk capital has been cautious possibly due to lack of confidence on market risk, given the fiscal and bond supply overhang. Since a large term premium has already existed, we wouldn’t expect a significant further expansion just because the risk has now materialized.

Further we don’t expect the entire expansion to manifest in the Centre’s fiscal deficit. After sharing this with states and accounting for other levers built in, we are looking for a final fiscal deficit of 3.7 nper cent versus the 3.3 per cent budgeted. This will entail some additional bond supply eventually, but with the cushion that the Centre’s net bond supply was slated to fall substantially in the second half of the year versus the first.

Portfolio Strategy
With the prospects of monetary easing somewhat diminishing in incremental intensity, and accounting for the somewhat higher bond supply, we may expect some amount of curve steepening going forward. This may likely happen as market participants anchor themselves to 3 thoughts: One, liquidity will remain abundantly surplus. Two, repo rate is here or modestly lower. Three, prospects of a very large bond rally are somewhat diminished (although this view will evolve going forward depending also on how much net additional supply actually manifests for local absorption) . This will likely increase appeal for the front end of the curve versus the longer duration, hence creating steepening pressure.

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Reflecting the above thought, we have cut our recent duration elongation into the 10-14 year segment and are now refocussing on being overweight 5-7 year for government bonds in our active duration funds. For AAA corporate bonds, the relative value continues in up to 5 years. These segments could better align to what remains an environment of abundant surplus liquidity, a very attractive term spread, still general lack of credit growth, and continued global monetary easing. (IANS)