Navigating NRI investments in Indian mutual funds | Fusion - WeRIndia

Mutual funds in India offer a diversified investment avenue, not just for residents but also for Non-Resident Indians (NRIs).

Understanding the tax implications and investment processes is crucial for NRIs eyeing this market.

Mutual funds generate returns in two forms: dividends and capital gains, both of which are subject to taxation under Indian law.

Previously, dividends were tax-free in the hands of investors, with companies paying Dividend Distribution Tax (DDT).

However, post the Union Budget 2020, dividends are added to the investor’s income and taxed according to their income slab.

Capital gains taxation varies based on the type of mutual fund and the duration of investment.

Equity and debt funds are treated differently, with specific rules for short-term and long-term capital gains.

NRIs can invest in mutual funds online or offline but must first open an NRO, NRE, or FCNR account.

Online investments require completing Know Your Customer formalities. These include documentation like a passport, PAN card, and proof of residence.

Alternatively, NRIs may choose the Power of Attorney method, allowing a designated individual to manage their investments.

Investment options for NRIs from the USA and Canada might be limited to offline transactions with certain fund houses.

For equity mutual funds, short-term investments are taxed at 15%, while long-term investments enjoy a 10% tax rate.

Non-equity funds face a 30% tax on short-term gains and 20% with indexation on long-term gains.

The Double Tax Avoidance Agreement between India and countries like the USA mitigates the risk of double taxation, offering relief to NRIs.

This agreement ensures NRIs don’t pay taxes on the same income in both countries, providing a clear path for those looking to invest in Indian mutual funds.

Understanding these nuances helps NRIs make informed decisions, maximizing their investment returns while complying with tax obligations.

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