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NRI Investment in Mutual Funds – Process, Do’s & Dont’s


Can NRIs Invest in Mutual Funds?


Absolutely, non-resident Indians (NRIs) have the opportunity to invest in Mutual Funds in India. The Indian government, in conjunction with the Securities and Exchange Board of India (SEBI), has put in place specific guidelines and protocols. These ensure that the investment process is smooth and transparent for NRIs. This initiative aims to encourage overseas Indians to participate in India’s financial growth through the Mutual Fund sector.


How Can NRIs Invest in Mutual Funds in India – Detailed Process


Starting with KYC Compliance


Every NRI desiring to invest in Indian Mutual Funds must first clear the Know Your Customer (KYC) process. This process involves several documents. These documents primarily are proof of identity, address proof, a recent photograph, and, importantly, a PAN card copy.


Institutions offering Mutual Funds often have set processes for KYC, which could sometimes involve added documentation or even direct meetings. Therefore, it’s a good practice for NRIs to familiarise themselves with the chosen institution’s specific KYC requirements.


Setting up an NRE/NRO Account


To proceed with investments, NRIs need to hold an NRE (Non-Residential External) or NRO (Non-Residential Ordinary) bank account in any Indian bank. These specially designed accounts allow NRIs to maintain and manage their funds in Indian Rupees, which further eases the investment and returns process.


An added piece of information: NRE accounts come tax-free and have provisions for repatriation, while NRO accounts have certain taxation aspects and come with limited repatriation options.


FEMA Declaration – A Mandatory Step


When making foreign transactions, especially in the Indian context, it’s essential to abide by the country’s regulations.


As a requisite, NRIs must provide a declaration consistent with the guidelines of the Foreign Exchange Management Act (FEMA). This is to certify that the investment funds comply with all Indian regulations.


Making the Right Fund Choice


India’s Mutual Fund market offers a vast range of funds. These cater to different financial goals, ranging from short-term gains to long-term security.


Before selecting the best mutual fund, NRIs might want to either research or consult financial experts to ensure the selected fund aligns well with their future financial plans.


The Utility of Power of Attorney (PoA)


If an NRI finds it challenging to manage the Mutual Fund investment due to distance or any other reason, they have the option to assign a Power of Attorney (PoA) to someone trusted in India.


The trusted individual, backed by the PoA, can then oversee transactions and manage the investment. It’s always safe and practical to define the boundaries of this power in the PoA document.


Understanding Tax Implications


Taxation is a significant part of investments. When NRIs invest in India, they might face tax implications here and in their residing country.


Understanding the Double Tax Avoidance Agreement (DTAA) that India shares with several countries is beneficial. Being aware can help in possibly avoiding dual taxation on the same income.


Steps for Redemption


Be it the maturity of the Mutual Fund or a voluntary exit, the redemption amount is typically credited directly to the NRI’s NRE/NRO account. Knowing about the process in advance and understanding any costs linked to redemption is beneficial.


While appearing comprehensive, the steps to invest in Mutual Funds in India for an NRI are designed for clarity and ease. With a good grasp of the process, an NRI can navigate the Mutual Fund landscape in India without any hurdles.


Things to Consider Before NRI Investment in Mutual Funds


Taxation Concerns


It’s crucial for NRIs to be well-informed about tax liabilities not just in India but also in the country where they reside. Different countries have diverse taxation norms, and being aware can prevent any unwanted surprises.


Selecting the Right Fund Type


The financial market boasts a wide variety of funds. To maximise benefits, it’s essential to research thoroughly and opt for a fund that perfectly matches your financial aspirations and future plans.


Determination of Investment Duration


NRIs should be clear about their investment horizon. Whether they’re looking at short-term gains, medium-term benefits, or long-term growth, this clarity will guide their choices.


Understanding Risk Appetite


Every investor has a unique risk threshold. Some might be adventurous and go to gamble for higher returns, while others prefer the safety of steady, assured growth. Recognising one’s risk tolerance will help select the most appropriate funds.


Impact of Currency Fluctuations


The global financial market is dynamic, and currency values can oscillate frequently. Being aware of these fluctuations is vital, as changes in exchange rates can influence the actual returns on Mutual Fund investments for NRIs.



For NRIs, the opportunity to invest in Mutual Funds in India is both lucrative and feasible. By understanding the process and staying informed about regulations, NRIs can make the most of their investments, securing their financial future.



Source- Religareonline

Know the different types of NRI Accounts in India


A Non-Resident Indian (NRI) or Person of Indian Origin (PIO) can open different types of bank accounts in India, depending upon their liquidity and investment requirements. Further, the type of bank account being opted for may also depend upon the repatriation requirements of the account holder. One can make an informed decision in this respect, only after knowing about different options available.



Here are different categories of accounts an NRI/PIO can open in India:



1.Non-Resident External (NRE) Account (Savings Account/Fixed Deposit)


NRE Accounts are rupee-denominated accounts, wherein the NRIs/PIOs can deposit their money in foreign currency and park such amount in Indian account. An NRI/PIO can open such an account in his/her name solely, or open a joint account with another NRI/PIO. In such accounts, one can deposit the funds in foreign currency which is converted into the Indian currency upon deposit at prevalent foreign exchange rates and credited to the account. Thereafter, the account holder can freely withdraw the money in domestic currency. However, no rupee credits are allowed in such accounts, as such accounts accept only the foreign currency credits. To further add to the utility of NRE Accounts, the account holder is free to repatriate the account balance outside the country without any limit. This means that you can freely transfer the principal amount deposited and also the interest earned on such deposit. Further, the interest earned by the NRIs on NRE Savings and Fixed Deposit Accounts is tax-free in the hands of the account holder.


2.Non-Resident Ordinary (NRO) Account (Savings Account/Fixed Deposit)


NRO Accounts are rupee-denominated accounts, wherein the NRIs/PIOs can deposit their Indian as well as foreign incomes. Such incomes can include interest income, rental income, dividend, pension, etc. An NRI/PIO can open such an account with ‘Single’ operations or operate a joint account with an NRI/PIO or even a resident. The account holders can credit the account with Indian currency as well as the foreign currency. In case of foreign currency credits, the funds are converted into the Indian currency at the prevalent foreign exchange rates. The account holder can freely withdraw the money in domestic currency. However, in terms of repatriability of the account balance, the account holder can repatriate the interest earned but is restrained from transferring the principal balance beyond the limits specified under the Foreign Exchange Management Act. The interest earned by the NRIs on NRO Savings and Fixed Deposit Accounts is also taxable in the hands of the account holder as per the Income Tax laws.


3. Foreign Currency Non-Resident (FCNR) Fixed Deposit Account


NRIs/PIOs can also invest in FCNR Fixed Deposit Accounts, wherein the funds invested continue to be maintained in foreign currency, unlike the rupee-denominated NRE/NRO Accounts stated above. Accordingly, such accounts mitigate the foreign exchange risk for the account holders. However, such accounts can only be opened for a fixed tenure like normal Fixed Deposits. Both, the principal and the interest amount in FCNR (Bank) accounts can be freely transferred to foreign country. As per the prevalent Income Tax laws, the non-residents do not have to pay any tax on interest income through such accounts.

With different types of bank accounts and deposit options available, NRIs can opt for the account type best suiting their operations and investment needs.


Source- IciciBank

Know about Section 195 – Income Tax for NRIs in India


The law says that if you earn income, you must pay income tax. But if you do not fall in the tax bracket or have paid excess tax, the Government will refund you, but that will come later; after you have paid income tax.


One mechanism that the Government has in place to ensure tax payment and curb evasion is TDS or Tax Deducted at Source. It is a basic form of income-tax collection; you may have seen such deductions reflected in your salary slip. TDS is also applicable on a range of income types, including interests earned and commissions received.


The Income-Tax Act, 1961 has specific sections to address the issue of TDS for different types of earnings – Salary (Section 192), Securities (Section 193), Dividends (Section 194), interest other than interest on Securities (Section 194A), lottery wins (Section 194B) and even prize money on horse racing (Section 194BB).


And then there is Section 195.


The NRI Tax


Section 195 spells out the tax rates and deductions on payments made to Non-Resident Indians (NRIs), who are required to file tax returns in India for income received or accruing or arising in India or deemed to accrue or arise in India. But this can be a tricky area. For example, TDS does not come into play when a Mutual Debt Fund pays up the proceeds of redemption to a Resident Indian, but it does not mean an NRI is exempted. This is where Section 195 comes into play – it identifies the key areas pertaining to tax for NRIs.



As is done with Resident Indians, the deduction is to be made at the time of crediting or making a payment, whichever event occurs earlier; this includes crediting in Suspense Accounts or any other account where the payment is credited.



While, Section 195 does not prescribe any threshold limit, and the TDS amount has to be computed on the entire amount payable. The onus of making the deduction falls on the payer – i.e. anyone making the payment to an NRI, irrespective of whether the entity is an individual or a company/organisation.



TDS Rates


What this means is that the payer needs to be aware of TDS rates under Section 195:


  • Income from investments: 20%
  • Long-term capital gains in Section 115E: 10%
  • Income by way of long-term capital gains: 10%
  • Short-term capital gains (as per Section 111A): 15%
  • Any other income by way of long-term capital gains: 20%
  • Interest payable on money borrowed in foreign currency: 20%
  • Royalty from Government/Indian concern: 10%
  • Other royalties received: 10%
  • Fees for technical services from Government/Indian concern: 10%
  • Any other income (e.g. rent on property owned): 30%


Surcharge and education cess, which must be statutorily added at the prescribed rate, can be ignored if payment is made as per the Double Tax Avoidance Agreement (DTAA).



NRI Exemptions


As stated earlier, computing TDS for NRIs can be tricky; for instance, Section 195 does not mention salary paid to an NRI in India; this is instead covered under Section 192. Sometimes, an NRI may have to be reimbursed by cheque payment for out-of-pocket expenses; this is not covered under Section 195 as there is no income element in the process.

Also, under Section195 (3) and Rule 29B, an NRI can apply for a nil-deduction certificate, provided the following conditions are fulfilled:


  • The NRI concerned is up-to-date on tax payments and tax returns
  • He/She has not defaulted in payment of tax, interest or penalties
  • He/She has been carrying on business in India for at least five years without a break, and the value of his/her fixed assets in India exceeds Rs 50 lakh.



Such certificates are valid until their expiry or cancellation by the assessment officer.
Also, if as an NRI, you are looking for tax breaks, you could look at the account categories that ensure that. Let us say you have an NRE Account with ICICI Bank; funds lying in such accounts will not attract any tax.



However, if you have an NRO Account, the interest earned on it would be taxable at the rate of 30%, in addition to the applicable cess and surcharge.



TDS Procedure: To deduct TDS under Section 195, the payer should first obtain Tax Deduction Account Number (TAN) under Section 203A, by filling Form 49B, available online.


  • PAN is a must for both the payer and the NRI concerned, who must be told of the deduction and the TDS rate. Also, the deducted amount has to be deposited by the 7th of the following month through authorised banks or the income-tax department.
  • Following this, TDS return can be filed electronically by submitting Form 27Q; this has to be done on specific dates: on Jul 31 (for the first quarter; Oct 31 (for the second quarter); Jan 31 (for the third) and May 31 (for the fourth).
  • The TDS certificate in a specified format i.e. Form 16A (Certificate of Deduction of Tax) can be issued to the NRI within 15 days of due date of filing TDS Returns, as given above.




What are the benefits of having NRI Account


Top 5 Benefits of NRI Account


A Non-Resident Indian (NRI)/Person of Indian Origin (PIO) can open NRI Account as Non-Resident External (NRE) and Non-Resident Ordinary (NRO) Accounts, which will enable an easier and convenient fund transfer for him/her from abroad to India. Both of these accounts allow the amount in foreign currency to be credited in the account. However, NRE Account does not allow any rupee credits into the account and is, therefore, suitable only if one needs to transfer overseas income and funds in an Indian bank account. It also provides you with additional benefits like repatriability, preferential tax treatment, etc.


NRI Account Benefits:



  • Convenient money transfers to India – Whether one has opened an NRE or NRO Account, one can deposit the income earned in overseas country in such accounts. Thereafter, the funds can be accessed through any bank branch in India as well. Accordingly, having an NRI Account in India is an easier mode of remitting money to India from overseas. Given the existing banking relationship, you can also expect competitive exchange rates for such funds transfer.


  • Flexibility of repatriation of funds – The current regulations in India allow flexibility in the repatriation of the balance available in NRE Accounts, for both the principal as well as interest income. In simple words, the balance in NRE Account can be transferred back to the foreign country without any restrictions. However, in case you open an NRO Account, you can transfer the interest income earned in such account without any limit, but certain limits are applicable on transfer of the principal amount as per extant forex regulations in force.


  • Better interest rates – The focus of the Central Banks across the globe has been to adopt the decreasing interest rate scenario, and in line with such philosophy, other banks provide very low-interest rates on the Savings Accounts. On the other hand, NRE Accounts in India tend to offer better interest rates. As such, an NRI Account can help you garner better returns for your surplus funds.


  • Easier operations within India – An NRI Account allows you to perform banking operations easily within India, even while you may be staying abroad. The bank will generally allow you to register the operational mandate to allow the operations of the bank account on your behalf. Such a mandate can be registered for your parents, relatives, spouse, siblings, etc. A cheque book and ATM Card can also be provided to the mandate holder, to enable easy withdrawal of the funds. Further, an NRO Account can also allow you to open a joint account with a resident Indian, allowing joint operations.


  • Tax exemption for NRE interest income – As per the prevailing tax laws in India, the interest income earned on NRE Accounts is not subject to Income Tax and thus remains tax-free for the account holder. Due to this exemption, the bank will not deduct any tax in respect of such interest income on NRE Savings Account or NRE Fixed Deposit. However, the exemption is applicable only for NRE Accounts and not for NRO Accounts. Accordingly, the bank will deduct tax at source for such interest income on NRO Accounts.



As such, NRIs can manage their money in a better manner through NRI Accounts and conveniently manage the fund transfer from abroad to India effortlessly.


Source: ICICIBank

NRE and NRO Accounts – Meaning, Comparison, Benefits, Taxation


NRE and NRO Accounts – Meaning, Comparison, Benefits, Taxation:

A Non-Resident Indian (NRI) may open an NRE Account or an NRO Account in India. While both accounts may be similar in a few features, they differ in some. As such, the selection of a suitable bank account is dependent upon the specific transaction requirements of the NRI. Let us discuss these bank accounts in detail.


NRE and NRO Account meaning:


NRE full form is Non-Resident (External) Account, which allows only foreign credits from outside India into the account. On the other hand, NRO stands for Non-Resident (Ordinary) Account. Such accounts allow both foreign currency credits from outside India as well as rupee credits from within India.


NRE and NRO Accounts comparison:


Here are some of the major points of difference between NRE and NRO Accounts:


Acceptance of Rupee Credits – As mentioned above, NRE Accounts do not accept rupee transactions from within India. On the other hand, NRO Accounts allow rupee transactions as well as foreign currency transactions. As such, if one wants to receive any amount from within India, NRO Accounts will be suitable for such persons, as against NRE Accounts.


Repatriability of Account Balance – NRE Account allows free repatriation of funds outside India without any limits. On the other hand, the interest income in NRO Accounts is freely repatriable, while the principal balance can only be repatriated up to specified limits.


Joint Operations – One can hold a joint NRE Account with another NRI. Also, in NRE Accounts, NRIs / PIOs can hold accounts jointly with a Resident relative on ‘former or survivor’ basis and the Resident relative can operate the account as a Power of Attorney holder during the life time of the NRI / PIO Account holder. On the other hand, you can hold a joint NRO Account with either a Resident or a Non-Resident.



NRE and NRO Account benefits:

Foreign Currency Remittance – Both NRE, as well as NRO Accounts, allow an individual to receive foreign currency credits from outside India. As such, one can open an NRI bank account and conveniently transfer funds into their account in India while staying abroad.


Mandate Holder – One can also appoint a mandate holder to the account, which adds convenience and accessibility to the operations in the NRI bank accounts. RBI has prescribed specific transactions for a Mandate Holder, hence it can be operated only with the permissible transactions.


Attractive Interest Rates – NRI bank accounts also allow better interest rates to the depositors, especially when compared to the foreign developed countries, most of which are operating on a near-zero or negative interest rates regime.



NRE and NRO Account Taxation


In terms of tax benefits, NRE Accounts enjoy tax exemption in respect of interest income on the bank accounts as well as Fixed Deposits. On the other hand, the interest income on NRO Accounts and deposits is subject to tax at applicable rates. However, one may avail of the benefit of Double Taxation Avoidance Agreements (DTAA). The DTAA benefits are subject to the relevant documentation being shared with the Bank and not by default.


While NRE Accounts offer repatriation and tax benefits, NRO Accounts are more suitable if one needs to accept rupee transactions. One may choose the account as per their specific transaction requirements.


Source- icicibank