How will an NRI Mutual Fund Investor be Taxed in India?

As an NRI, you can invest in mutual funds easily. However, it is also important to know more about its tax aspect before making an investment.

As per the Foreign Exchange Management Act (FEMA), NRIs are allowed to invest in mutual funds in India. In case you have dependents or family back in India, investing in a mutual fund provides a diversified portfolio with an excellent mix of debt and equity securities.

The benefits of investing in a mutual fund for NRIs are

• Online - NRIs can benefit the most from the online facility, anytime and anywhere. All AMCs and banks provide the facility of online banking. NRIs can purchase/sell, redeem, switch and opt for systematic transfer or withdrawal facilities through the online mode. The entire process is paperless and hassle-free. In addition, you will receive consolidated account statements via email.
• Currency Appreciation - If a currency’s value surges against the resident country’s currency, it leads to a higher profit margin for an NRI. Example - If an NRI invests 500 dollars in a mutual fund in India at an exchange rate of Rs. 70 to 1 dollar, even with possible depreciation, an investor can reap good returns.
  The gains from equity mutual funds are taxable based on the holding period. Short-term capital gains attract tax at the rate of 15%.
  However, Long-Term Capital Gains (LTCG), exceeding Rs. 1 lakh a year, 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 more than three years will result in a 20% tax on the gains with indexation benefit. LTCG on non-listed funds will be taxed at the rate of 10% without indexation.

NRIs do not have to pay double tax when they invest in mutual fund in India, specifically if India has signed Double Taxation Avoidance Treaty (DTAA) with the country of their residence. In absence of this treaty, the gains from the mutual fund investment are taxable based on the holding period. Short-term capital gains attract tax at the rate of 15% while Long-Term Capital Gains (LTCG), exceeding Rs. 1 lakh a year, are taxable at the rate of 10%. In the case of debt funds, 20% tax on gains with indexation benefit.

There are two ways an NRI can invest in India:

• Direct - Investment transactions can be easily made online via net banking or the Fund Houses website. An NRI is required to submit their KYC details (copy of passport is a must) and indicate that the investment is on a repatriable or non-repatriable basis. Some banks also require an in-person verification by visiting the India embassy in their resident country. Additionally, NRIs can open an NRO/NRE/FCNR with an Indian bank and start investing in mutual funds.
• Power of Attorney - Mutual fund companies facilitate Power of Authority holders to invest money on behalf of an NRI. PoA is assigned by the NRI. The bank or AMC will credit the corpus (investment + gains) you get when you redeem your fund units to your account after deducting applicable taxes, if any.
  In a nutshell, NRIs can choose to invest in a mutual fund in India with any respective bank or AMC. India, being one of the fastest growing economies, is a good investment option for NRIs.