If you are a Non-Resident Indian, residing in the USA or Canada, and looking to invest in mutual funds in India, this article is for you. The reason being unlike NRIs from other countries, USA/Canada NRIs are faced with certain compliance considerations if they are looking to invest in India.
However, there are many AMCs in India that allow US/Canada NRIs to invest in mutual funds in a hassle-free way. Let us know more about these AMCs and the rules governing USA/Canada NRI investments in India.
Who Are Considered As Non-Resident Indians (NRIs)?
Any Indian resident who is been residing outside India for a period of 182 days or more in a financial year is termed a Non-Resident Indian.
As an NRI, you can hold on to your existing property that you bought earlier (when you were a resident) as well as can invest in new properties within the domestic boundaries. A major portion of NRIs investments includes real estate investments. However, NRIs can also opt for other investment avenues like mutual funds.
Rules For NRIs Mutual Fund Investment
NRI mutual fund investments are governed by the Foreign Exchange Management Act 1999 (FEMA). As per the provisions of the act, the NRIs are allowed to make investments in the capital markets including direct stocks, exchange-traded funds (ETFs) and mutual funds. These investments are allowed only with the compliance of certain conditions like fresh filing of Know Your Customer (KYC) documents, the opening of a rupee-denominated Non-Resident External (NRE) or Non-Resident Ordinary (NRO) account, etc.
Investment Procedure For NRIs In India
Mutual fund houses are not allowed to accept investments in foreign currencies. So, firstly it’s necessary to open an NRE account, NRO account or Foreign Currency Non-Resident (FCNR) account with an Indian bank. Now the NRI can proceed with any one of the below options:
- Direct/Self-investment: All the basic transactions, debiting and crediting can be done by NRIs through usual banking channels. The investment application must be attached with the required KYC details. While the application itself it is required to mention whether the investment is capable of repatriation or not.
- Via Power of Attorney: Asset Management Companies (AMCs) allow NRIs to invest through another person. NRIs can give their Power of Attorney (PoA) to someone who can then take the decisions regarding their investments. However, the signature of both the NRI investor and PoA holder should be present on the KYC documents at the time of investment application.
Issues related to the USA and Canadian NRI Investors
Mutual fund investments are as simple for NRIs (not from USA and Canada) as it is for residents. This is only because of the cumbersome compliance requirements under the Foreign Account Tax Compliance Act (FATCA).
Under FATCA, it is compulsory for all financial institutions to share details of all transactions involving US citizens, including NRIs with the US government. FATCA ensures that there is no deliberate tax evasion on the income generated by US citizens overseas. India signed the Inter-Governmental Agreement (IGA) with the USA on July 9, 2015, for improving International Tax Compliance and implementing FATCA. Due to this reason, mutual fund houses stopped taking investments from USA and Canada.
After consultation between the fund houses and experts, many have again started the investments from the USA and Canada but with some conditions applied. For example, ICICI Prudential AMC, Birla Sun Life Mutual Fund and SBI Mutual Fund allow USA and Canada investments only through the offline transaction with an additional declaration signed by the client, whereas L&T Mutual Fund doesn’t allow such investments in close-ended funds.
List of the fund houses that accept investments from NRIs based in the USA and Canada are:
Taxation Laws For NRIs For Mutual Fund Investments
Taxation rules are basically the same for both residents and NRIs. For example, dividends are exempt from tax in the hands of residents or NRIs.
- Short term capital gains (STCG) rules apply for equity mutual fund investments made for 1 year or less. The applicable tax rate is 15% of the gains.
- Long term capital gains (LTCG) rules apply for equity mutual fund investments made for more than 1 year. The applicable tax rate is 10% of the incremental gains over Rs. 1lakh for a financial year.
- Short term capital gains (STCG) rules apply for debt mutual fund investments made for 3 years or less. The applicable tax rate is 30% of the gains.
- Long term capital gains (LTCG) rules apply for debt mutual fund investments made for more than 3 years. The applicable tax rate is 20% of the gains with indexation benefit in case of listed funds or 10% without indexation benefit in case of non listed funds.
Now, at the time of sale or redemption of units, the tax calculated as above will be deducted by the buyer and the remaining money will be transferred to the NRI. This is known as Tax Deducted at Source (TDS) and it is then paid to the government on behalf of the NRI. Thus, after that, no tax on the same is required to be paid by the NRI to the Indian Government.
| Type of scheme | Tax Rate |
| STCG | LTCG |
| Equity Schemes | 15% | 10% on long-term gains exceeding Rs. 1lakh |
| Non-Equity Schemes | 30% | 20% with indexation (listed fund) 10% without indexation (unlisted fund) |
| Type of scheme | TDS Rate |
| STCG | LTCG |
| Equity Schemes | 15% | 10% |
| Non-Equity Schemes | 30% | 20% |
Further, NRIs can claim the benefit of TDS deducted and taxes paid in India against the tax payable in their country as per the Double Taxation Avoidance Agreement (DTAA). For example, if a tax of Rs. 50,000 is deducted on the short-term capital gain in an equity fund in India, then NRI can claim the same on the tax required to be paid on the same gain by him/her in the resident country. The main objective of DTAA is to avoid double taxation of the same income.
Conclusion
NRIs can choose to invest in their home country (India) as it is one of the growing economies in the world. There might be some difficulties in the initial stage, but in the long run, it will be fruitful. NRIs will have a scope to earn returns from investments as well as more profits from rupee appreciation.
With online investment options, it has become easy for NRIs to track their investment portfolio. Even the NRIs from USA and Canada can start to invest in mutual funds as now the count of fund houses accepting USA and Canada clients is increasing.
FAQs
Yes, Non Resident Indians (NRI) and Persons of Indian Origin (PIO) can invest in Indian Mutual Funds on a full repatriation as well as non-repatriation basis. However, NRIs would have to comply with all regulatory requirements such as completion of KYC before investing.
What are the rules for mutual funds in NRI? ›
Yes, Non Resident Indians (NRI) and Persons of Indian Origin (PIO) can invest in Indian Mutual Funds on a full repatriation as well as non-repatriation basis. However, NRIs would have to comply with all regulatory requirements such as completion of KYC before investing.
How NRI can invest in Indian mutual funds? ›
NRIs can invest in Indian mutual funds provided they comply with the regulations under FEMA (Foreign Exchange Management Act). As per FEMA, one can't invest in Indian MFs through foreign currencies as fund houses can accept inflows only in Indian currency.
What are the guidelines for NRI investment in India? ›
Non-resident Indians can buy any immovable property in India other than agricultural land or a plantation. However, NRIs should pay out of the funds earned in India through normal banking channels or a non-resident account maintained in compliance with FEMA. The payments made in any other mode are not permitted.
How do I buy mutual funds directly for NRI? ›
If you're an NRI looking to invest in mutual funds market in India, then you must open either NRO or NRE account. If you're a novice or an experienced investor, you can invest in capital markets such as stocks, dividends, exchange-traded funds (ETFs) and mutual funds, subject to terms and conditions.
How much tax on mutual funds in India for NRI? ›
Taxation rules for NRIs and residents of India are alike. For equity mutual funds, the investments made for 1 year or less will be taxed at 15% as per the short-term capital gains taxation rules. For long-term investments, the mutual funds are taxed at a rate of 10% as per the long-term capital gains taxation rules.
What documents are required for NRI investment in mutual funds? ›
Their application with the required KYC details must indicate that the investment is on a repatriable or non-repatriable basis. KYC documents consist of a recent photograph, certified copies of PAN card, passport copy, residence proof of outside India, and a bank statement.
Can NRI from USA invest in mutual funds in India? ›
Can NRIs invest in mutual funds? Yes, NRIs can invest in mutual funds on a repatriation or non-repatriation basis if they are categorized as NRIs under FEMA regulations and the rules of the IT Act of 1961. Also, the NRI must have either an NRE, NRO, or an FCNR account to invest in mutual funds in India.
How to do KYC for NRI? ›
- First page and last page of the valid passport. If the address mentioned in the form is different from the address in passport. Please provide any of the following with present address. Indian Address Proof. ...
- Valid VISA/ Employment VISA / Student VISA /Work Permit/ Residence Permit. Additional Document.
- PAN Card/Form 60.
Additionally, NRIs are barred from investing in instruments such as currency derivatives and commodities. Apart from these, NRIs cannot participate in intraday trading in the Indian stock markets, unlike resident Indians. They are only allowed to take the delivery of shares.
If an individual is physically present in India for 182 days or more during the relevant FY, they will qualify as a resident. Alternatively, if they are physically present in India for 60 days or more during the relevant FY and 365 days or more in the preceding four FYs, they will also qualify as a resident.
How can I avoid NRI tax in India? ›
When NRIs invest in certain Indian assets, they are taxed at 20% on the income earned. If the special investment income is the only income the NRI has during the financial year and TDS has been deducted, then such an NRI is not required to file an income tax return.
What are the tax rules for NRI returning to India? ›
Even the FCNR and NRE accounts of such RNORs are tax-free. The assets and money brought to India by such NRIs are exempt from any wealth tax for up to 7 assessment years. Under FEMA, NRIs who return to India can own, hold, invest, or transfer their assets not located in India.
Can NRIs do SIP in India? ›
Facilitating SIPs for NRIs
As an NRI interested in Indian SIPs, you will need a Non-Resident External Rupee (NRE) account or a Non-Resident Ordinary Rupee (NRO) account. You can use the sums parked in these accounts for your expenses and investments in India, including SIPs.
Do NRI need PIS for mutual funds? ›
All you need to do is open a PIS account for NRI and reap the harvest in the secondary market. The NRI must route all the stock market investments through this account to comply with the governing regulations. *Tax benefit are for Investments made up to Rs. 2.5 L/ yr and are subject to change as per tax laws.
How to start mutual fund SIP for NRI? ›
To start the mutual fund investment through SIP, you should have an NRI bank account in India from where the SIP amount is deducted. For the SIP amount, you can also give a Direct Debit Mandate or Electronic Clearing Service mandate. Apart from this, you also have the option to issue post-dated cheques.
How much NRI is tax free in India? ›
Tax Slabs of NRI for AY 2022-23:
| Income Range | Tax Rate | Health Cess |
|---|
| Income Upto Rs. 2,50,000 | 0% | Nil |
| Rs.2,50,001 - 5,00,000 | 5% | 1% |
| Rs.5,00,001 - 10,00,000 | 20% | 1% |
| Above Rs. 10,00,000 | 30% | 1% |
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Debt mutual funds held for less than three years are considered short term. In this case, capital gains are added to the income of the NRI. It is then taxed at 30 per cent. When held for more than three years, they become long term.
How are Indian mutual funds taxed in US? ›
In the USA, the long-term capital gains tax rate varies depending on the investor's income level, ranging from 0% to 20%. Short-term capital gains on mutual funds are taxed as ordinary income in both countries.
What is the checklist for NRI account? ›
Account Opening Form Copy of PAN Card Passport size photographs Copy of Passport (along with VISA page & ADDRESS page) Copy of OCI (Overseas Citizenship of India) Card / PIO (Person of Indian Origin) Card Copy of FOREIGN ADDRESS Proof Overseas Address Proof Copy of INDIAN ADDRESS Proof 1 Cancelled CHEQUE of the NRI ( ...
- Certificate of registration/incorporation.
- Memorandum and Article of Association.
- Address proofs.
- Resolution of the Board of Directors to open an account for investment in Mutual Funds Schemes.
- List and signature/s of authorised person/s.
- Deed of declaration of HUF.
- Bank Statement.
- Trust deeds (for Trusts)
An NRE account is a bank account opened in India in the name of an NRI, to park his foreign earnings; whereas, an NRO account is a bank account opened in India in the name of an NRI, to manage the income earned by him in India. These incomes include rent, dividend, pension, interest, etc.
Can NRI have USD account in India? ›
An RFC (Resident Foreign Currency) Savings Account is a savings account maintained in foreign currencies - USD and GBP - for NRIs who have returned to India and hold funds in foreign currency.
How to invest in India from USA? ›
Top 5 investment options in India for NRIs from USA
- NRI Fixed deposits. Banks offer 3 types fixed deposits non-resident Indian: ...
- Mutual funds. ...
- Indian stocks. ...
- Real estate. ...
- Pre-IPO.
You can now open a non-PIS account to invest in equity, convertible preference shares, convertible debenture, warrants, or mutual fund units.
What is overseas address proof for NRI? ›
List of Indian & Overseas Address proof
| Sr No | Document | Overseas Address Proof |
|---|
| 1 | Valid Indian passport with Identification & address page | Yes |
| 2 | In case of PIOs : Foreign passport having parents' /spouse's name (Handwritten address on the passport will be acceptable if the entire passport is handwritten.) | Yes |
22 more rowsHow to do KYC in 1-minute?
- Tap on the KYC icon.
- Enter your Aadhaar Details and validate OTP.
- Verify your information and tell us few more details.
- That's It, your KYC is done.
KYC Documents Individuals
- Passport.
- Voter's Identity Card.
- Driving Licence.
- Aadhaar Letter/Card.
- NREGA Card.
- PAN Card.
An NRI must have a savings bank account before investing in India. There are two types of bank accounts that an NRI can operate in India based on their earnings: Non-Resident External Bank Account for income out of India or NRE Bank Account.
Can I use Zerodha outside India? ›
Yes. Non-Resident Indians can trade in futures and options provided they have mapped a CP (Custodial Participant) to their NRO account. Zerodha has a partnership with Orbis Financials for custodial services.
As per the Foreign Exchange Management Act (FEMA) guidelines, an NRI cannot have a savings account in his or her name in India. You must convert all your savings (money earned abroad) to a Non-Resident External Account (NRE) or Non-Resident Ordinary (NRO) account.
How much NRI can transfer to India? ›
As of the financial year 2021-2022, the LRS limit for NRIs is INR 2,50,00,000 per financial year. This limit applies to the total amount of funds transferred by an NRI during the financial year, and includes all transfers made for any purpose, including investments, gifts, and personal expenses.
How long is NRI status after returning to India? ›
Your NRI status after returning to India will be deemed as RNOR status for 2-3 years and then eventually when the conditions for RNOR status are not satisfied, your residential status will become a ROR (Ordinary Resident).
How many years for NRI in India? ›
Resident status when you leave for employment outside India
In case you are an Indian citizen, and you leave India for employment outside of India, or as a member of the crew on an Indian ship, your status will be a Non-Resident Indian (NRI) if you stay in India in the previous year for more than 182 days.
Do OCI have to pay tax in India? ›
Any Persons of Indian Origin (PIO), Overseas Citizens of India (OCI), or Foreign Citizens have to pay income tax and file an ITR if they have been a resident for more than eighty-two days. OCI card holders get to claim tax benefit as well. Indias follows a 'Residency'-based taxation system.
Is money received from overseas taxable in India? ›
Are inward remittances taxable in India? Usually, there are no tax implications for expenses covering living costs, travel, medical bills, education, gifts, donations to charitable institutions, etc. However, it depends on the nation's laws from where you initiate the money transfer.
Can a US citizen sell property in India? ›
If you have land for sale in India, you may only sell it to a resident of India. NRIs are not allowed to purchase or own agricultural land in India. However, if you purchased the land while you were a resident of India, you may sell it as an NRI, but only to Indian residents.
What is the salary in India after returning from USA? ›
So if you are drawing a salary of USD 100,000 in the US, you can expect to draw Rs 21 lakh in India, give or take. At an exchange rate of Rs 45, that would translate to an Indian salary of USD 46,666 or 46% of the US salary.
What is the penalty for not converting to NRO account? ›
However, Interest on the NRO account is taxable in India and will be liable for TDS. As per FEMA rules, the penalty for not converting a resident account to an NRO account is up to 3 times the amount in the account or INR 2 lakh when the sum is not quantifiable.
What happens to NRI accounts when one returns to India? ›
NRE accounts are ideal for inward remittances (foreign earnings) and freely repatriable. However, upon your return to India permanently, you will have to convert your existing NRO / NRE savings account and deposits into resident savings account and deposits.
Yes, Non-Resident Indians (NRIs), Overseas Citizens of India (OCI), and Persons of Indian Origin (PIOs) are allowed to invest in mutual fund SIP schemes like resident Indians. No approval is required from RBI or any other body to invest in mutual fund SIPs in India.
Can I invest in SIP from USA? ›
Non-Residents of India (NRI), Persons of Indian Origin (PIO), and Overseas Citizens of India (OCI) are eligible for investing in Indian mutual fund SIP schemes just like the Indian residents. On top of this, no special permission is required from RBI or any other banking body to invest in the mutual fund SIP schemes.
How much tax do I pay on my NRI PIS account? ›
Since PIS is applicable for shares to be purchased and sold on recognized stock exchanges in India. Tax @ 15% will be deducted if the shares have been held for less than 12 months.
What are the charges for PIS account for NRI? ›
| Sr No | Fee Head | Fees* |
|---|
| 1 | PIS approval issuance fee ( one time fee) | Rs.1000.00 |
| 2 | Annual account maintenance fee | Rs.1000.00 |
| 3 | PIS Reporting Charges | |
| Purchase | Rs.100 per contract |
11 more rowsWhile trading in equities can be down through NRE or NRO accounts, F&O trading can be done by NRIs only through NRO accounts that are non-Repatriable. Also, NRIs will have to get a Custodial Participant (CP) code before trading in F&O. NRIs can only trade on delivery basis in Indian equities.
What documents required for NRI mutual fund? ›
NRI KYC Documents for Mutual Fund
Download the NRI KYC form for mutual fund. Canceled cheque leaf of your NRO, NRE, or FCNR bank account. Certified Foreign Address Proof – residential permit, latest utility bill, DL with address, etc. Indian address proof – latest utility bill, DL, Aadhar card, Bank statement, etc.
Are mutual funds allowed for NRI? ›
However, the following are the major fund houses that allow NRIs from USA and Canada to invest in their mutual fund schemes with a few additional conditions:
- L&T Mutual Fund.
- Aditya Birla Sun Life Mutual Fund.
- UTI Mutual Fund.
- SBI Mutual Fund.
- ICICI Prudential Mutual Fund.
- DHFL Pramerica Mutual Fund.
- Sundaram Mutual Fund.
Can NRIs continue with their investments in Indian mutual funds? Yes. There is no restriction on NRIs investing in Indian mutual fund schemes.
Is TDS applicable on mutual funds for NRI? ›
TDS is applicable at 20% for NRI income from investments. However, the unit holders can claim indexation benefits while filing ITR. Short-term capital gains (STCG) on equity-oriented mutual funds (STT paid) are taxed at 15%, and so is the TDS for NRI on income on investments.
How long NRI account can be maintained after returning to India? ›
Once you come back to India permanently, you are a resident as per FEMA. And residents are not permitted to keep a NRE account. Interest on NRE FD is tax exempted only for Non-Residents. Therefore from the day you come back to India any interest earned in NRE FD becomes taxable in your hand.
Repatriation: NRIs can invest in the Indian market on a repatriation basis using their NRE or FCNR account. Investment on repatriation basis means an investment, the sale/ maturity proceeds of which are, net of taxes, eligible to be repatriated out of India.
How long can I maintain NRI status after returning to India? ›
c) NRI/RNOR status after returning to India
Your NRI status after returning to India will be deemed as RNOR status for 2-3 years and then eventually when the conditions for RNOR status are not satisfied, your residential status will become a ROR (Ordinary Resident).
Is there any TDS on mutual funds? ›
There shall be no TDS deductible if dividend income paid / credited in respect of units of a mutual fund is below ₹ 5,000 in a financial year.
Why should NRI invest in mutual funds? ›
Tax benefits: NRIs who invest in Indian mutual funds can take advantage of lower tax rates as compared to their home countries with LTCG being only 10%. (Depending on their country tax treaties).
What is taxed in mutual funds? ›
Mutual fund taxes typically include taxes on dividends and earnings while the investor owns the mutual fund shares, as well as capital gains taxes when the investor sells the mutual fund shares. The tax rate (and in turn the tax on mutual funds) depends on the type of distribution and other factors.
How do you avoid TDS on mutual funds? ›
Submit Form 15G/H to avoid TDS on dividend income
The income tax laws allow an individual to submit Form 15G or Form 15H (as applicable) to the financial institution concerned to avoid TDS on the income earned.
How do I avoid tax on mutual funds? ›
In Case of Gain
By selling the equity mutual fund holdings immediately or systematically before reaching the limit of ₹ 1 lakh in a financial year. You have to closely monitor your investment portfolio and market scenario to decide the right time of selling off mutual fund units.
How much is TDS for NRI in India? ›
What is Rate of TDS on Sale of Property by NRI?
| Particulars | Property Sale Price (Rs.) |
|---|
| Less than 50 Lakhs | Above Rs. 1 Crores |
| Long Term Capital Gains Tax | 20% | 20% |
| Surcharge | Nil | 15% of above |
| Total Tax (incl Surcharge) | 20% | 23% |
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