Investment by Non-Resident Indians (NRIs) in India has been an investment strategy with a thrust in the direction of diversification of portfolio and taking advantage of the economic growth of the nation. With several choices of investments, mutual funds have been the choice one since they offer better returns along with expert management. The taxations are always troublesome, though. The recent changes have been a huge relief in this context, and NRI investment in mutual funds in India has become even more appealing.
Understanding the New Tax Relief for NRIs
The Mumbai Income Tax Appellate Tribunal (ITAT) in a historic ruling held that the capital gains pertaining to NRIs arising as a result of investment in mutual funds in India are not taxable in specific scenarios. This comes under the purview of the Double Taxation Avoidance Agreement (DTAA) that India shares with foreign countries such as Singapore. It’s a rule to the extent that if the NRI happens to stay in a nation which shares a DTAA with India, and it grants exclusive rights for taxing, if the agreement between the treaty grants such powers, then gains from mutual funds won’t be taxable in India. This verdict is particularly advantageous to NRIs who reside in nations like the UAE, Bahrain, Qatar, Singapore, Mauritius, Hong Kong, Australia, and the UK. It is replete with transparency and trust, thereby leading to more NRIs feeling that mutual funds are a perfect investment idea in India.
Why Mutual Funds Are an Attractive Option for NRIs
Diversification: Mutual funds enable investors to diversify their asset class investment, industry, and geography, lowering risk.
Professional Management: Mutual funds are controlled by qualified professionals who take informed decisions after detailed analysis of the market.
Regulatory Oversight: Mutual funds are regulated by SEBI, and there is transparency as well as safeguarding of investors’ interests.
Flexibility: NRIs can pick and choose from the array of funds—equity, debt, hybrid—depending on the risk profile and investment period.
Ease of Investment: Low cost of the platform and low KYC have facilitated investment by NRIs in mutual funds.
Investment Process by NRIs
To invest in Indian mutual funds, NRIs need to go through the following process:
Open an NRE/NRO Account: NRIs need to have an NRE or NRO account. Investment under NRE is repatriable in full and under NRO repatriation is limited.
KYC completion: NRIs need to undergo the Know Your Customer (KYC) process of submitting documents such as a copy of the passport, proof of foreign address, and passport size photo.
FATCA compliance: For NRIs who are based in the USA and Canada, FATCA compliance is necessary. This entails additional disclosure and documentation.
Select the Appropriate Fund: Depending on the investment horizon and risk-taking capacity, NRIs can select appropriate mutual fund schemes. Financial planners’ recommendations can be helpful to arrive at informed decisions.
Invest via SIP or Lump Sum: NRIs can invest via Systematic Investment Plans (SIPs) for regular investment or invest lump sums according to their investment plan.
Taxation Snapshot for NRIs
Even with the recent ITAT order that gives relief from tax on some DTAA conditions, there is a need to look at the overall taxation situation:
Equity-Oriented Funds:
Short-Term Capital Gains (STCG): 15% tax when units are held for a period of less than 12 months.
Long-Term Capital Gains (LTCG): 10% on gains above ₹1 lakh if units are held for more than 12 months.
Debt-Oriented Funds
STCG: Taxed according to the investor’s tax bracket if units are held for less than 36 months.
LTCG: At 20% with benefit of indexation if units are held for more than 36 months.
NRIs need to consult taxation specialists in order to make themselves familiar with the implications according to their domicile nation and DTAA clauses involved.
VSRK Capital: Your Investment Partner of Choice for Mutual Funds
At VSRK Capital, we take you through the universe of investments in India. As registered distributors of mutual funds with AMFI, we offer:
Personalised Investment Plans: Plans designed according to your risk profile and financial objectives.
Round-the-Clock Support: Assistance in KYC, FATCA, and scheme selection of mutual funds.
Clarity in Operations: Ensuring clarity of operations and regulatory compliance.
Periodic Portfolio Review: Monitoring and rebalancing your portfolio for optimal returns.
With the new tax relief introduced and our guidance, investment in Indian mutual funds is now all the more beneficial for NRIs.
Frequently Asked Questions (FAQs)
Q1: Can I initiate a SIP from my NRI bank account?
Yes, as an NRI, you can invest in an SIP of Indian mutual funds out of your NRE or NRO bank account. Investment in NRE account can be returned in full, and investment in NRO account can be repatriated to the extent. You will need to undergo the due process of KYC and FATCA norms before initiating a SIP. It’s also a good idea to contact the mutual fund house or distributor since some of them could have investment restrictions from certain nations such as the USA or Canada.
Q2: As an NRI, how do I select the best mutual fund schemes?
As an NRI, to select the best mutual fund schemes, first determine your investment time frame, objectives, and your risk appetite. Invest in money funds with good past performance, well-known fund managers, and suitable portfolio mix according to your intention—capital gains, dividend, or wealth preservation.
Take into account India tax implications and your home country under the relevant Double Taxation Avoidance Agreement (DTAA). It’s also advisable to check if the fund house is accepting NRI investment from your country, particularly if you are an USA or Canadian NRI. Consult a SEBI registered distributor of mutual funds such as VSRK Capital so that you make investments in line with your objectives.
