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 7.0-7.5 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.
That brings us to ELSS. As said before ELSS has some extra advantages over other tax-saving investments permitted under Section 80C. “The returns from ELSS are tax-free and sufficient enough to beat inflation,” says Puneet Oberoi.