Who is an NRI? |
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1. An Indian citizen or a foreign citizen of Indian origin who
stays abroad for employment/carrying on business or vocation or under
circumstances indicating an intention for an uncertain duration of stay abroad
is a NON-RESIDENT INDIAN (NRI). (Those who stay abroad on business visit,
medical treatment, study or such other purposes which do not indicate an
intention to stay there for an indefinite period will not be considered as
NRI's.)
2. Students who go abroad for studies with an intention to stay
there for an uncertain period and who stayed abroad for more than 180 days in
the preceding financial year will be treated as Non Resident Indians.
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Can NRI's invest in Mutual Funds in India? |
Investments by NRI's in Mutual Funds can be made on a
repatriable or on a non-repatriable basis, as preferred by the investor.
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Certain restrictions do exist in some of the host countries of
NRI's like U.S., Canada etc. on investment by NRI's in Indian Mutual Funds.
These, NRI's will have to check themselves before investing or committing to
invest in Indian Mutual Funds.
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Repatriable Basis |
To invest on a repatriable basis, you must have an NRE or FCNR
Bank Account in India. The Reserve Bank of India (RBI) has granted a general
permission to Mutual Funds to offer mutual fund schemes on repatriation basis,
subject to the following conditions:
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The mutual fund should comply with the terms and conditions stipulated
by SEBI.
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The amount representing investment should be received by inward
remittance through normal banking channels, or by debit to an
NRE/FCNR
account of the non-resident investor.
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The net amount representing the dividend / interest and maturity
proceeds of Units may be remitted through normal banking channels
or credited to NRE / FCNR account of the investor, as desired by him
subject to payment of applicable tax.
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Non-Repatriable Basis |
The Reserve Bank of India (RBI) has granted a general
permission to Mutual Funds to offer mutual fund schemes on non-repatriation
basis, subject to the following conditions:
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Funds for investment should be provided by debit to NRO account of the
NRI investor. Alternatively, funds may be invested by inward remittance
or by debit to NRE / FCNR Account.
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The current income in the form of dividends is allowed to be repatriated.
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No permission of Reserve Bank either by the Mutual Fund or the
NRI investor is necessary.
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Does an NRI need any approvals from the Reserve Bank of India to
invest in mutual fund schemes? |
No. As an NRI one does not need any specific approval from the
RBI for investing or redeeming from Mutual Funds. Only OCB's and FII's require
prior approvals before investing in Mutual Funds.
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Can NRI individuals make investments in domestic public/private
sector Mutual Funds or Money Market Mutual Funds floated by commercial banks
and public/private sector financial institution on non/repatriation basis? |
Yes.
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What are the investment restrictions on NRI's for investments in
Mutual funds? |
There are no investment restrictions on NRI's for investing in
mutual funds. RBI does not restrict investment in mutual funds either on
repatriable or non-repatriable basis.
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Can I gift Mutual Fund Units to my relatives in India? |
Yes. Certain funds do permit gifting of units. One should refer
to the offer document of the specific fund to know the details.
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Can I repatriate my earnings on redemption? |
If the investment is made on a repatriation basis, the net
income or capital gains (after tax) arising out of investment are eligible for
repatriation subject to regulatory guidelines in force at the time of
repatriation. If the investment is made on a non-repatriation basis, only the
net income, that is, dividend, arising out of investment is eligible for
repatriation.
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Can I repatriate my initial investment, earnings (capital gains)
from redemption and any dividend arising from it? |
If the investment is made on a repatriation basis, the net
income or capital gains (after tax) arising out of investment is eligible for
repatriation subject to regulatory guidelines in force at the time of the
repatriation. If the investment is made on a non-repatriation basis, only the
net income, that is, dividend, arising out of investment is eligible for
repatriation.
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Is there any ceiling on NRI investments in mutual fund schemes? |
There are no ceilings on investments in mutual fund schemes by
NRI's.
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What is the procedure for redeeming mutual fund units? |
NRI's can redeem their Units by signing on the tear-off portion
of the account statement & sending it to any of the AMC or your personal MF
investment advisor through post or by sending a letter requesting redemption
with the signatures and the amount to be redeemed. The redemption request would
be processed at the applicable NAV based price. The redemption proceeds will be
sent directly to the bank branch where NRE/NRO account depending upon whether
repatriable or non-repatriable account within three business days. The
redemption proceeds will be net of tax deduction at source on the profits.
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| What is the tax liability on receipt of Income on Mutual Fund
Units? |
As per Section 10(33) of the Income Tax Act, 1961 (‘Act’)
income received in respect of Units of a mutual fund specified under Section
10(23D) is exempt from income tax in India and the mutual funds are subject to
pay distribution tax in debt-oriented schemes. Hence all dividends are tax-free
in the hands of non-resident investors and no TDS is applicable on the same.
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| What is the tax liability on Redemptions? What is the rate of
Tax Deduction at Source for NRI's / PIO's? What is the tax - rate on capital
gains for NRI's / PIO's? |
Under Section 2(42A) of the Income Tax Act, Units of the Scheme
held as a capital asset, for a period of more than twelve months immediately
preceding the date of transfer, will be treated as a long term capital asset
for the computation of capital gains – thus attracting long term capital gains
tax rate.
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In all other cases it would be treated as a short-term capital
asset and would attract short-term capital gains tax rate. Hence depending on
the period of investments, long term or short capital gains and tax thereon is
applicable on redemption’s.
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Though there is currently no long-term capital gain tax
liability for redemptions from equity schemes, there is a liability at the time
of redeeming from the debt schemes.
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| Tax Rates and TDS Rates to NRI’s / PIO’s / FII’s? |
I. Income from Units of a mutual fund specified under
section 10(23D) of the Income-tax Act, 1961 (the Act) is exempt in the hands of
unit holders under section 10(35) of the Act. No income tax is deductible under
section 194K and 196A of the Act on any income distribution by the Mutual Fund.
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| II. Capital Gains and TDS thereon: |
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Tax Rates* under the Act
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TDS Rate* under the Act
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Residents
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NRI's / PIO's
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FII's
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Residents
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NRI's / PIO's / other Non FII non-residents
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FII's
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Short Term Capital Gain
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Units of a non equity oriented fund
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Taxable at normal rates of tax applicable to the assessee
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30% without indexation benefit
(u/s 115AD)
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NIL
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30% for non residents non corporate,
40% for non resident corporate,
(u/s 195)
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NIL
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Units of an equity oriented fund
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15% on redemption of Units where STT is payable on redemption
(u/s 111A)
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Nil
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Long Term Capital Gain **
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Units of a non equity oriented fund
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10% without indexation, or 20% with indexation, whichever is
lower
(u/s 112)
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10% with no indexation benefit
(u/s 115AD)
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NIL
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20% for non residents (u/s 195)
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NIL
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Units of an equity oriented fund
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Exempt in case of redemption of Units where
STT is payable on redemption [u/s 10(38)]
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Nil
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Nil
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*Plus surcharge as applicable: corporate, co-operative societies, firms and
local authorities: 10%; Individuals/HUF's/BOI's/AOP's, with total income exceeding
Rs.10,00,000 : 10%; Artificial juridical person: 10%.
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** Capital Gains on redemption of Units held for a period of more than 12
months from the date of allotment.
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•Long Term Capital Gains arising from redemption of unit of a non equity
oriented fund are exempt from tax, if gains are invested in specified bonds
within 6 months from the date of redemption, under Section 54EC of the Act
or if gains are invested in eligible equity issues within 6 months from
the date of redemption, under Section 54ED of the Act.
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•In order for the unit holder to obtain the benefit of a lower rate under the
DTAA, an eligibility certificate from unit holder’s Assessing Officer
should be provided to the Fund.
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| Is the indexation benefit available to NRI's? |
Yes, in case Units are held for more than twelve months i.e. on
long-term capital gains.
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| Can an NRI gift the Units of MF's to resident Indians? |
An NRI may gift the Units to any investor Indian or an NRI.
Units gifted by any person would not be liable to any gift tax since the Units
held under the schemes are also not subject to provisions on the Gift Tax act,
1958.
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| Are Units of MF's chargeable in Wealth Tax? |
No. Units issued to investors (including NRI's) etc. will not be
treated as assets as defined under section 2(ea) of the Wealth-Tax Act, 1957
and hence will not be liable to wealth-tax.
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| Is Securities Transaction Tax applicable to NRI investors? |
Yes.
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| Is there any Tax liability on switching from one option to the
other? |
Yes. On switching from the Growth option to the Dividend
option, the investor is liable to TDS at the applicable tax rate.
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| Can NRI's invest their funds in Government securities or Units of
Unit Trust of India(UTI)? |
Yes. NRI's are freely permitted to invest their funds in
Government securities or Units of UTI through authorized dealers. Units can
also be purchased directly from UTI.
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| Can NRI's make investments in National Savings Certificates
issued by Post Offices in India? |
Yes. Investments in National Savings Certificates can be made
by NRI's subject to the terms and conditions applicable to the sale/issue of
such certificates. However, NRI's are not permitted to invest in bearer
securities like Indira Vikas Patra/Kisan Vikas Patra
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| Can Government securities/Units be freely transferred or sold? |
Yes, provided the transfers/sales are arranged through an
authorized dealer. Units can, however, be repurchased directly by UTI.
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| How can I invest in Indian equity markets? What is the
procedure? |
Portfolio Investment Scheme: |
Under this scheme, NRI's can acquire shares/ debentures of
Indian companies or Units of domestic mutual funds through the stock
exchange(s) in India through portfolio investment scheme.
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NRI's can also invest in unlisted companies through portfolio
investment scheme. The application is to be submitted to Reserve Bank of India
through a designated branch of a bank in India in one of the prescribed forms.
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| What is a designated branch? |
Reserve Bank of India has authorized a few branches of each
bank to conduct the business under Portfolio Investment Scheme on behalf of
NRI's. These branches are the main branches of major commercial banks located
close to the stock exchange(s). These branches are called designated branches.
NRI's will have to go through any of these designated bank branches. Each NRI
has to select one branch for this purpose for investment on repatriation/
non-repatriation basis. It is advisable to maintain a bank account with the
designated branch for administrative convenience.
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| What is the validity period of Reserve Bank’s permission? |
Reserve Bank of India's approval for portfolio investment is
valid for a period of five years from the date of issue. Making a request by
means of a simple letter can renew this further.
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| Is there any ceiling on the investment under the Portfolio
Investment Scheme? |
There is an overall ceiling of 10 percent of equity share
capital of the company/ paid-up value of each series of convertible debentures
for purchase by NRI's/ OCBs. There is no such limit or restriction in respect of
portfolio investment in non-convertible debentures and mastershares of UTI. The
overall ceiling can be raised to 30 percent if the company concerned passes a
Board resolution and a special resolution in its general body meeting.
Individually, NRI's/OCB's can make investment up to 1% of the paid-up equity
share capital/each series of convertible debentures. However, there is no
ceiling on investment in domestic Mutual Funds.
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| Is dividend/interest earned in respect of investment made under
the 100% Scheme freely remittable to the NRI's abroad? |
Dividend/interest can be remitted freely except in the case of
consumer goods industries where the outflow on account of dividend is required
to be balanced by export earnings of the company either in the year of
declaration of dividend or in the years prior to the declaration of dividend,
This requirement is enforced for a period of seven years from the commencement
of commercial production.
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Accounts to be opened and Documents to be submitted:
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| A. TOTAL ACCOUNTS TO BE OPENED. |
| 1. BANK ACCOUNT WITH DESIGNATED BANK. |
| 2. ACCOUNTS WITH BROKER. |
3. DEMAT ACCOUNT WITH DEPOSITORY.
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| B.TOTAL DOCUMENTS REQUIRED. |
| 1. PHOTOGRAPHS SIGNED ACROSS. |
| 2. PASSPORT COPY OF CLIENTS WITH VALIDITY PAGE AND VISA PAGE. |
3. PROOF OF RESIDENCE (DRIVERS LICENCE, ELECTRICITY BILLS, ETC.
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| C) Can I repatriate my funds? If yes, how? |
| Investment on repatriation basis: NRI's can make portfolio
investment in shares and debentures quoted in any stock exchange in India with
full benefits of repatriation of capital invested and income earned on that
capital. In the case of shares/ debentures/ bonds acquired by NRI's through
stock exchanges under the Portfolio Investment Scheme, transfer can be done
through stock exchanges provided the sale is arranged through the same
designated branch through which they were purchased. In other cases,
applications for necessary permission are required to be made to Reserve Bank
of India on form TS4/ TS3.
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