NRIs can invest mutual funds In India, however, they are subject to certain special rules in terms of tax and foreign exchange. Several platforms allow NRIs to invest in India from their country of residence in a completely online process like Kuvera, Clear and Scripbox. However, some mutual fund houses do not accept mutual fund applications from the US or Canada due to heavy paperwork under the FATCA (Foreign Account Tax Compliance Act). Fund houses that allow US/Canada residents to invest in India include some AMCs that allow US/Canada resident investments such as L&T MF, Nippon India MF, PPFAS MF and UTI MF. Investments are subject to certain terms and conditions.
How to invest: Firstly, NRIs need to open an NRE (Non-Resident External) account or NRO (Non-Resident Ordinary) account to invest. mutual funds in India. You can deposit your foreign income in India in Indian Rupees through NRE account. You can deposit your Indian income in Indian Rupees in India through NRO account. Anoop Bansal, Chief Investment Officer, Scripbox said, “NRE is a Rupee account from which funds are freely repatriable, whereas NRO account is a Rupee account which is generally non-repatriable. However, the Liberalized Remittance Scheme (LRS) NRO funds can be remitted abroad under the plan, subject to limits (up to $1 million a year) and conditions. An NRE account can only be opened with remittances from abroad, but NRO accounts can be made with your local funds or Can be opened with money remitted from abroad.
Complete your KYC: NRIs need to fulfill Know Your Customer (KYC) requirements before investing in mutual funds in India. NRIs will have to submit the KYC form and attested KYC documents by courier/post to SEBI registered intermediaries who are completing KYC such as mutual fund distributors or registered investment advisors. Online platforms may have enabled webcam based KYC in some cases. Raj Khosla, Managing Director, MyMoneyMantra.com said, “An NRI needs to submit recent photograph, attested copies of Permanent Account Number (PAN) card, proof of residence outside India, passport copy and a bank statement for verification purposes . In some cases, NRIs may have to visit the Indian Embassy in the country of residence for personal verification. The KYC form will also inquire whether the money will be repatriable or not.” Further, suppose you give a POA (Power of Attorney) to someone to conduct the investment processes on your behalf. In that case, you and the POA KYC documents need to be signed. Once KYC is completed, NRIs can invest in mutual funds and place redemption orders online. However, NRIs should be wary of exchange rate risk. Indian Mutual Funds mostly Invest in rupee denominated assets and hence the value of such investments gets reduced if the rupee depreciates against other currencies. This affects the total returns NRIs get from their mutual fund investments. However, the fund- There are off-funds which also invest in markets outside India.These operate at par with other mutual funds in India.
Taxation: The NRI tax rate is no different from what Indian residents have to pay. But the tax rules are different for NRIs when it comes to redemption of mutual funds. NRI investments are subject to Tax Deduction at Source (TDS) on redemption. TDS is 30% on Short Term Capital Gains (STCG) in Non-Equity Mutual Funds and 20% on Long Term Capital Gains (LTCCG) in Non-Equity Mutual Funds. For Equity Mutual Funds, the respective STCG and LTCG TDS rates are 15% and 10% respectively. On dividend, TDS with surcharge is 20% in case of income above 50 lakhs and 4% health and education cess. The redemption process of mutual funds for NRIs differs across AMCs. “The mutual fund house will deposit the redemption amount (investment + capital gains, if any) after deducting appropriate tax in your specified NRE/NRO account,” Gupta said. AMCs accepting investments in their mutual fund schemes from NRIs in the US and Canada must comply with FATCA requirements. Under FATCA, mutual fund houses are mandated to share transactions of US citizens, including NRIs, with the US government under the Foreign Account Tax Compliance Act. The CRS imposes similar requirements for NRIs from other countries.
“FATCA ensures that US citizens avoid taxes on their foreign investments. AMCs share customer transaction details with the Indian government, which shares them with the US government. To comply with this, some AMCs share their US and Canadian NRIs may allow customers to invest only through the offline route and apply additional declarations,” Gupta said. However, NRIs can avail Double Taxation Avoidance Agreement (DTAA) if an agreement with their country of residence. As per the DTAA, NRIs can pay tax in either country or both and claim tax relief from their country of residence. “Around 90 countries have DTAA treaty with India,” Bansal said.
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