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.
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.
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.
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:
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 rules are basically the same for both residents and NRIs. For example, dividends are exempt from tax in the hands of residents or NRIs.
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|
|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|
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.
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.