NRI mutual fund taxation Investment procedure

Certainly, NRI mutual fund taxation is activated in mutual funds in India – as long as they attach to the Foreign Exchange Management Act (FEMA). A mutual fund in your home country can give you a diversified job with the desired mix of debt and equity securities. Even if you are careful and cautious and want a fixed income investment method, the Indian debt market comes with higher interest rates. You may start with equity funds, debt funds or hybrid funds.

Benefit from mutual fund investments to NRI’s

As one of the fastest-growing economies in the world, the Indian economy attracts thousands of investors from abroad. Here are some of the benefits NRIs can enjoy by investing in Indian mutual funds given below.

a. Easy to manage funds online from anywhere

With the advantage of investing online, it is easier to track and control your mutual fund from the residence country too. Investors can purchase, redeem, switch as well as choose for systematic transfer or withdrawals online. No need to give cheques, make DDs, fill in physical forms or even be in the same country! You will get regular account statements (CAS) through email. Asset Management Companies also post mutual fund portfolio disclosures online to keep investors notified.

b. Scope for more profits from rupee appreciation

If the INR value has raised on the resident country’s currency, it means higher profits for the investor. For a case, if an NRI from the UK buys 1000 pounds of mutual funds in India at an exchange rate of Rs. 100 to 1 pound. If the INR value has hiked on the resident country’s currency, it means more profits for the investor. Even with possible depreciation, the investor can reap good returns. NRIs and PIOs can also get equal benefits by investing in India-based mutual funds in their own country of residence.

Investment procedure for NRIs in India

Asset Management Companies in India cannot admit investment in foreign currency. To this, the first step is to open an NRO account, NRE account or a Foreign Currency Non-Resident (FCNR) account with an Indian bank. You can invest in any of the below methods.

a. Self/Direct

One can bring out transactions, debiting or crediting with normal banking channels. Your application with the required KYC details must show that the investment is on a repatriable or non-repatriable basis. KYC documents include a current photograph, certified copies of PAN card, passport, residence proof (outside India), and bank statement. The bank may require an in-person verification that you can comply by visiting the Indian Embassy in your resident country.

b. Via Power of Attorney

Another easier but common method is to have someone else invest in your account. Mutual fund companies allow Power of Attorney (PoA) holders to invest on your behalf and take other decisions of your investments. However, signatures of both the NRI investor and PoA should be present on the KYC documents to execute the investment.

Applicable Rules for NRI Mutual Fund Investments

NRI investments are mainly governed by the Foreign Exchange Management Act 1999, commonly known as FEMA. As per the current provisions of the act, NRI is allowed to make investments into capital markets including direct stocks, exchange-traded funds (ETFs) and mutual funds subject to key terms/conditions. However, these investments are allowed only if certain conditions are met including performing fresh mutual fund KYC for NRI and setting up of a rupee-denominated NRE/NRO account.

Non-Resident External (NRE) and Non-Resident Ordinary (NRO) Accounts for NRI MF Investments

In the case of NRI investors, NRE and NRO accounts are the commonly utilized accounts and having either of them is a mandatory requirement if you plan to make mutual fund investments in India as a non-resident Indian. Both of these are rupee-denominated accounts i.e. the balance amount is in Indian rupees (after applicable conversion) irrespective of the currency in which the initial deposits were made. While both accounts are susceptible to rupee depreciation and are similar in many respects, there are a few key differences to consider when choosing one over the other:NRE account can be used to deposit foreign earnings into a rupee-denominated account, while NRO account can be used to hold income generated in India by an NRI from rent, dividend received, etc.

• NRE account balance is tax-free, whereas, NRO account balance is taxable as per your applicable slab rate.
• NRE account deposits can be freely repatriated, whereas, NRO account balances can only be partially repatriated (up to USD 1 million per year).
• You should, of course, keep in mind that any resident Indian accounts you might have had prior to attaining NRI status can easily be converted to an NRE/NRO account. This offers a simpler option for opening a new NRE/NRO account altogether.

 How are NRI mutual fund investors taxed?

NRI investors usually fear that they will have to give double tax when they invest in India. Well, that is surely not the case if India has signed the Double Taxation Avoidance Treaty (DTAA) with a particular country. For example, India has signed this agreement with the US. Hence, you can claim tax relief in the US, if you have previously paid taxes in India.

The earnings from equity mutual funds are taxable based on the holding period. Short term capital gains invite tax at the rate of 15%. However, Long Term Capital Gains (LTCG), more than Rs 1 Lakh, are taxable at the rate of 10%.

In the case of debt funds, Short Term Capital Gains are taxable at the rate of 30%. Holding the fund for longer than three years will result in a 20% tax on the profits with indexation benefit. LTCG on non-listed funds will be taxed at 10% without indexation.

Points to remember when investing in India

Points to remember when investing in India

a. Your investment provides the right of repatriation of the amount invested and amount earned, only until you remain an NRI.

b. The residential address in the resident country is a mandatory field. Hence, you must also attach an attested proof along with the application.

c. The compliance requirement is the US and Canada are more powerful as compared to other nations. According to FATCA guidelines, all financial institutions must share the details of financial transactions concerning a US person with the US Government.

d. Are you a resident of any of the 90 countries that have signed the Common Reporting Standard? CRS is a global reporting system to oppose tax evasion.

In short, NRIs can decide to invest in his/her home country. The process may have any initial troubles. However, in the long run, the return on investment would be deserving of it. Currently, only eight fund houses allow mutual fund investment from NRIs living in the US & Canada. So, there is surely no reason for you to be left out of investing in one of the fastest-growing economies.

Conclusion

Thus, the longer you keep onto your mutual fund units, the more tax-efficient they become. This is because the tax on long-term gains is much lesser than a tax on short-term gains.

You are one click away from simplifying your taxes with the help of Wealthbucket. We offer numerous services like Equity Mutual Funds, Large Cap Mutual Funds, Multi-Cap Mutual Funds, Small Cap Mutual Funds and many more.

Even you can Call us at+91 9999379929. Or email at contact@wealthbucket.in

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