NRIs can buy life insurance policy in India

A N Shanbhag, the highly respected investment guru, and his son Sandeep Shanbhag, answer your questions on NRI investment.

A new Rediff India Abroad feature:

On a recent visit to India I was advised by a friend, who is a Life Insurance Corporation insurance agent, to buy insurance policy called 'Jeevan Anand' from LIC. According to him, LIC has started issuing insurance policies to NRIs.

Is it possible to buy such a policy even if you are a US citizen? How does it compare to buying an equivalent policy from US-based insurance company? What are the advantages/disadvantages of buying an insurance policy from India?

-- Prakash Teli

Indian laws permit Non-Resident Indians to buy insurance. As such, you are allowed to purchase the mentioned LIC policy. However, it is always better to buy term insurance and you should check whether the said policy is a pure term insurance policy or investment embedded within insurance.

The only advantage of buying an insurance policy in India, apart from the insurance that it offers, is that there is a tax deduction up to Rs 100,000 available on such an investment. Obviously, it will help you only if you have Indian taxable income.

Then again, there are other investments such as mutual funds which offer a similar tax write-off. Therefore, you will have to consider whether you need insurance or not and if you do, consider buying the cheapest form of insurance, that is term insurance.

Lastly, we can answer queries pertaining only regarding Indian tax laws and Indian investments. We are not aware of the various kinds of insurance policies available in the USA, therefore we will not be able to compare and contrast the two. Kindly get this information from a consultant specializing in tax laws and investments of USA.

I recently sold my flat in India (Pune) after having had the property for one-and-a-half years and would like to know if I will be liable to the government for taxes payable on the capital gains incurred on the difference between purchase value and sale value.

I would also like to know if the government allows any leverage for property appreciation as though I have made a gain in rupee value of the property, I have made a loss in the foreign currency invested. Please advise as I intend to repatriate the funds soon.

-- R Melwani

Since your holding period of the flat is less than 36 months, the profit is short-term capital gains which will be treated as your income for the financial year and taxed accordingly. There is no provision for leverage for property appreciation to account for foreign exchange fluctuations.

I am an Indian passport holder with properties and investments in India. I am in the process of acquiring US citizenship. Can I continue to hold these investments once I become a US citizen, on a 5 year multiple entry Indian visa?

-- Venkatraman Eswaran

Yes, you can continue to hold your investments as before.

Would the Overseas Citizenship of India qualify me for the post office money scheme in which I can deposit rupees and accrue interest for use for my expenses in India.

-- Mally Kariha

What Dual Citizenship does is bring the overseas citizen on par with the NRI on some specific parameters. However, NRIs are not allowed to invest in post office instruments. So we don't think that the OCI scheme will make any difference to this.

Thank you for all the information you have been giving us through India Abroad. I am going to get PPF amount after 16 years, can I bring my money to USA. Can I deposit it in my NRO account. I am an American citizen now but when I opened this account, I was an Indian citizen

-- Jagdish P Bhatia

As of now you can. However, laws change from time to time and sixteen years is a really long period. We will have to see what the laws are at that point in time.

However, slowly, India is moving to full convertibility and in all probability, in sixteen years time, the rupee should be fully convertible and therefore, even then you should be able to repatriate this money.

Sometime back I had written to you regarding the fact that I had sold some real estate and made profit. Though the capital amount is being readily credited to the NRE (Non-Resident External) account, the bank is not allowing the credit of the profit amount to the NRE account. Instead they insisted that I repatriate the money and then if needed credit it back to the NRE account. I found this absurd and wrote to you.

You mentioned that the definition of the word repatriation includes crediting to the NRE account. I spoke to the bankers but they now want to take on record the exact law as it exists. May I request you to quote the section or the clause which deals with this?

-- Mohan Mandrekar

For the benefit of readers I am reproducing my earlier answer.

When property that was originally purchased using funds from the NRE account is sold, the original capital amount used can be immediately repatriated. The capital gains can be repatriated after appropriate tax is paid thereon. For this purpose, an undertaking by the remitter and certificate by a Chartered Accountant in the format prescribed by CBDT vide their Circular 10/2002, dt 9.10.02 (October 9, 2002) has to be submitted. In the meanwhile, the bank credits the capital gains portion either to a suspense account or to the NRO (Non-Resident Ordinary) account of the NRI.

It seems that the bank is not allowing a credit to the NRE account from the suspense or the NRO account in this case. Normally, money cannot be transferred from an NRO account to the NRE account. However, in this case, RBI expressly allows repatriation. And the definition of "repatriation" includes a credit to the NRE account of the investor.

Therefore, if the bank is allowing the funds to be repatriated, they should allow the credit to the NRE account.

This subject is dealt with in Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000. In Section 2 clause (d) thereof, 'repatriation outside India' includes crediting the amount to an account in Indian currency maintained with an authorised dealer from which it can be converted into foreign currency. In other words, the amount may be credited to the NRE account.

The authors may be contacted at wonderlandconsultants@yahoo.com