NRIs can invest in mutual funds, here is how; 10 points

Non-resident Indians (NRIs) are allowed to invest in mutual fund schemes offered by Indian fund houses and are governed by the Foreign Exchange Management Act (FEMA). Before investing in Indian MFs, there are certain things NRIs 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 an Indian bank. They can either make payments via a cheque issued from their NRE/NRO account or use net banking facility.

KYC
Know Your Customer (KYC) norms are the 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 authorise someone on their behalf to make the investments. For doing that, they need to get a Power of Attorney and KYC formalities have to be completed with respect to the POA.

Application form
The MF application form is the same as applicable to any investor. But make sure that the 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 NRE or NRO bank account as registered with the 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 transactions of NRIs staying in USA, with the United States Government.

Repatriation of redemption money
NRIs can transfer their invested money and the gains back to their overseas account, subject to paying off the due income tax liability as applicable.

Tax on capital gains
The capital gains can be either short-term or long-term. The standard taxation rules apply depending on the MF scheme and how long it was held. If an equity scheme is held for more than one year, the gain is treated as Long-Term Capital Gain and is liable to tax at 10%, after April 1, 2018, with an exemption of first Rs 1 lakh in a year. 

If the gain is booked within one year, it becomes Short-Term Capital Gain, which is taxable at 15%. For debt MFs held for less than three years, the gain becomes STCG. It has to be added to an NRI’s total gross taxable income and is taxable based on their tax slab. If the debt fund is held for more than three years, gains becomes LTCG and will be taxed at 20% with indexation benefit.

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

Watch this Zee Business video

Today, technology has reduced the paper/physical compliances and made it easier for them to participate in the India growth story.

(The writer is chief gardener, Money Plant Consultancy)

Source: DNA Money