INVESTMENT: How NRIs can invest in mutual funds

Non-resident Indians (NRIs) are allowed to invest in mutual fund schemes offered by Indian mutual fund companies and are governed by the Foreign Exchange Management Act (FEMA). Before an NRI plan their investments in Indian mutual funds, there are certain things they have to comply with, let us understand in detail: -

NRE/NRO bank account: Investment in MFs cannot be made in a foreign currency so NRIs have to open an NRO or NRE account with any Indian bank. They can make payments towards their investments via a cheque issued from their NRE/NRO account or they can also use net banking facility.

KYC: Know Your Customer (KYC) norms are same for NRIs and resident investors. An NRI has to apply for a KYC and submit documents for address and identity proof, such as copy of passport, PAN and photograph.

How to invest: NRIs can invest on their own or can authorise someone on their behalf to make the investments. For doing that, they need to get a POA and the relevant KYC formalities have to be completed with respect to getting the said POA.

Application form: The MF application form remains the same standard application form as applicable to any investor, but what is important here is to make sure that your FATCA information/declarations is submitted correctly.

TDS on capital gains: On redemption, there is a provision of Tax Deduction at Source (TDS), which does not apply to resident investors.

Credit of Redemption proceeds: On redemption, proceeds get credited to an NRI's respective NRE or NRO bank account as registered with the respective fund house.

USA & Canada: The regulatory requirement and compliances are often more stringent for NRIs based out of US and Canada. As per FATCA rules, every financial organisation has to share details of every financial transaction, which involves an NRI staying in USA with the United States Government.

Repatriation of redemption money: They have the right to transfer their invested money back to their overseas account, that is, repatriation of their invested amount and the gains made as well, subject to paying off the due income tax liability as applicable.

Tax on capital gains: The capital gains, which NRIs make on their debt or equity investments, can be either short-term or long-term capital gain. The standard taxation rules apply depending on which MF schemes they had invested in and how long it was held. The LTCG from an equity scheme is treated as long-term investment if it is held for more than one year. It is liable tax at 10%, after April 1, 2018 with an exemption of first Rs 1 lakh in a year. And if the gain is booked within a period of one year , then it becomes the STCG, which is taxable at the rate of 15%.

For debt MFs, which are held for less than three years, the gain becomes short term gain. It has to be added to an NRI's total gross taxable income and will be taxable based on their tax slab. If case the debt fund is held for more than three years, gains becomes LTCG and will be taxed at the rate of 20% with indexation benefit.

Residential address: It is compulsory to provide your address of the resident country. The corresponding proof is also supposed to be submitted along with your MF application form.

Today, investing in Indian MFs is much simpler then it was, thanks to technology, which has reduced paper/physical compliances. This has made it easier for NRIs to participate in the India growth story.

The writer is chief gardener, Money Plant Consultancy