ELSS Tax Benefits for NRIs

ELSS Tax Benefits for NRIs

NRIs are always on the lookout for high-grade investment opportunities that are safe and secure and, at the same time, would allow them some respite from income tax.

There are numerous avenues of investment that offer high returns from investment from gold to property, but unfortunately, all are fully taxable.

Equity Linked Saving Schemes, better known as ELSS, are a welcome exception. Simply put, they are equity-oriented mutual funds.

Let’s find out all about ELSS and how they can benefit an NRI who wishes to invest smartly.

Meaning of ELSS

ELSS funds are mutual funds run by private or public sector fund management houses. Most of the fund under management (also known as the corpus) is invested in the primary or secondary market, including the derivative market.

Under Sec 80C of the Indian Income Tax Act 1960, they offer savings of ₹150,000 in taxes.

The difference between ELSS and other mutual fund schemes that invest in equity is the high minimum lock-in period of three years.

Whatever your profits after three years are taxed under Long Term Capital Gains, or LTCG.

Features of ELSS Funds

  • At least 80% of the funds under management have to be invested in equity.
  • Usually, ELSS funds are not sector-specific; that is, there are no pharma or tech ELSS funds.
  • There is no maximum period for investment, but the minimum is at least three years.
  • Tax savings of ₹150,000 are available yearly under Sec 80C. The investment of this amount is subtracted from gross income.
  • It is taxed under LTCG at 10% for the amount over ₹1 lakh.

Benefits of ELSS

  • Though you can avail of 80C benefits for PPF and NSC, the returns from ELSS are higher. Some funds, such as BOI AXA, have returns of 19%. This, however, varies across funds.
  • ELSS is not sector-specific, and you can be sure that part of your investment is put in core sectors such as steel and cement, and FMCG besides tech and pharma. This makes the risk profile of the fund lower.
  • There is very little investment needed to participate. Some ELSS funds allow an investment of only ₹500 per month. This has made ELSS extremely popular among all classes of investors.
  • ELSS allows both lump sum as well as SIP investment. This makes it possible for NRIs to invest an inheritance of several lakhs or just a little bit every month.

Before You Go…

Through ELSS, an NRI can avail of tax deduction and indexation (lower LTCG due to inflation). Further, returns less than ₹1 lakh are exempt from taxation. ELSS funds’ management fees are also relatively low, since these funds have a mass appeal.

Using ELSS, an NRI can save a substantial chunk of taxation every year (up to ₹47,000 if they are in the highest tax bracket).

But it has to be noted that ELSS is not suitable for the elderly, who have a low-risk appetite and need a steady fixed income or pension.

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