ELSS Funds for NRI to Save Income Tax in India

ELSS for NRI: Equity Linked Savings Scheme, commonly known as ELSS, is one of the most preferred tax-saving options. ELSS has the shortest mandatory lock-in period and offers superior returns which makes it one of the best options, not only for resident investors but also NRI investment in India. NRIs can invest in an ELSS or tax saving mutual funds and can claim up to Rs. 1.5 lakh as deduction from their taxable income in India under Section 80C of the Income Tax Act. 

Key takeaways

  • ELSS is an excellent investment option to get both high returns and tax-saving benefits.
  • When you invest in these tax-saving mutual funds, you can claim up to Rs. 1.5 lakh as a deduction under the Section 80C of the IT Act.
  • Long term capital gains on ELSS, held for more than 1 year, are tax-exempt up to Rs. 1 lakh.
  • After the 3-year lock-in period, you can either continue investing or withdraw the amount. 
  • Investing in ELSS is riskier compared to other tax-saving financial tools, but you can expect higher returns.
  • ELSS offers higher returns but your expectations should be realistic. To get better returns, you will have to stay invested for a longer period of time.  

ELSS for NRIs

ELSS is a diversified equity scheme offered by mutual funds in India. These are equity funds that invest a major portion of their corpus in equity or equity oriented securities, a part of the corpus is also invested in debt instruments. ELSS funds are a great way to save income tax in India as they offer tax exemption of up to Rs. 1.5 lakh from your taxable income u/s 80C of the IT Act. 

NRIs can invest in ELSSs to enjoy the dual benefit of tax deductions and wealth accumulation over a period of time. 

ELSS Funds for NRI to Save Money
ELSS Funds for NRI to Save Money

How can NRI invest in ELSS funds

NRIs can invest in mutual funds in India by following the steps mentioned below:

Set up an NRI account

As per the Foreign Exchange Management Act (FEMA), once an Indian citizen attains NRI status, they can’t operate a regular savings account in India. As per their suitability, NRIs can open either an NRE or NRO account to park their money and conduct financial transactions in India. 

NRIs can invest in ELSS funds on either repatriable or non-repatriable basis. Funds in an NRE account are fully repatriable outside India. Hence, if you want to send the income from ELSS funds back to the country of your residence you can invest in mutual funds in India from an NRE account. 

If you use your NRO account to invest in mutual funds, the capital appreciation can be repatriated, but the principal amount will not be repatriable. 

Get your KYC done

NRI investors need to get their KYC done to invest in mutual funds. Submit the following documents to complete your KYC process:

  • Completed KYC form needs to be submitted to the SEBI registered intermediary.
  • Other documents are as under:
    • Overseas address proof
    • Indian address proof
    • A copy of your visa and passport
    • Recent photographs
    • PAN card
    • Bank Statement

Merchant Navy workers will be required to submit a mariner’s declaration or certified copy of Continuous Discharge Certificate (CDC).

Get your KYC documents attested from any of the following authorities: authorized officials of overseas branches of scheduled commercial banks registered with the RBI, judge/ court magistrate, Public Notary, or the Indian Embassy/Consulates in the country of your residence. Some mutual fund houses may ask for in-person verification. 

It is important to note that options of investment in mutual funds for NRIs from USA/ Canada are limited. NRIs from these countries will have to provide additional documents. 

Investment process

  • Self or direct: NRIs can invest in funds through normal banking channels. The investment application must indicate that the investment is on a repatriable or non-repatriable basis.  
  • Through the Power of Attorney: NRIs can give power of attorney to a resident Indian to invest on their behalf. The assigned person can also make other decisions regarding the investment. Signatures of both the NRI and POA should be on the KYC documents for this type of investment. 

Taxability of ELSS for NRI

ELSS are taxed like equity funds and any dividends from ELSS mutual funds are added to the income of an investor. You will be taxed as per the NRI income tax slab you fall under. 

The income that you earn from ELSSs at the end of 3-year lock-in period will be treated as long-term capital gain and taxed accordingly. Long term capital gains up to Rs. 1 lakh are exempt from tax. Income exceeding Rs. 1 lakh will be taxed at a rate of 10%.

NRI Investment in Mutual Funds | Expert Advice | Portfolio Services & Recommendations

Before investing in the Indian market, NRIs must consult market experts to make informed decisions. At SBNRI, we always strive to simplify NRI investment in India and hence have partnered with AMCs and banks. You can get detailed mutual fund advisory from experts at SBNRI. You can download SBNRI App from the Google Play Store or App Store to ask any questions related to mutual fund investment, NRI account opening online and tax filing in India. To ask any questions related to Mutual Funds, click on the button below. Also visit our blog and YouTube channel for more details. 

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FAQs

Who can invest in ELSS funds?

Anyone whether a normal resident or NRI can invest in ELSSs to reduce taxable income under Section 80C of the IT Act. However, investment in this type of mutual fund is subject to market risk. 

What are the benefits of investing in ELSS for NRIs?

NRIs can enjoy the following benefits by investing in ELSS:

– Tax-free long-term capital appreciation up to Rs. 1 lakh

– Dual benefit of tax deduction and wealth accumulation

– Shortest lock-in period in comparison with other tax-saving scheme u/s 80C

– Invest through SIP

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