NRI mutual funds in India, tax, KYC and repatriation.

NRIs can invest in Indian mutual funds through two routes under FEMA:

• Repatriable basis: investment from NRE / FCNR account; sale proceeds and capital gains freely repatriable without USD 1M cap.
• Non-repatriable basis: investment from NRO account or inward remittance; sale proceeds and gains credited to NRO, subject to USD 1M repatriation cap.

KYC documents:

• Passport (plus visa / residence permit of host country).
• Overseas address proof (utility bill, bank statement, driver licence).
• Indian PAN (mandatory).
• Indian bank account (NRE / NRO / FCNR).
• FATCA + CRS self-declaration specifying tax residence country.
• Signature attestation (sometimes required by Indian consulate / notary / banker).

US NRI restrictions: many Indian AMCs (ICICI Prudential, SBI MF, HDFC MF historically) do not accept US-NRI subscriptions due to US SEC compliance costs (registration under Investment Advisers Act). Some AMCs accept US NRIs with additional documentation. Canada NRIs face similar restrictions. UK, UAE, Singapore, Australia NRIs are generally fully accepted.

Equity-oriented mutual funds (65%+ equity exposure):

• LTCG (held 12+ months): 12.5% post-July 2024 (previously 10%). INR 1.25 lakh exemption per year (previously INR 1 lakh).
• STCG (held <12 months): 20% post-July 2024 (previously 15%).
• STT is paid at redemption on equity MFs, qualifying them for the above rates.
• TDS by AMC: yes, deducted at source on redemption for NRIs (unlike for Indian residents). Rate matches the applicable LTCG / STCG rate; refund via ITR filing if excess.

DTAA override: treaty-based lower rate may apply where available — most treaties do not reduce capital gains on Indian shares post-2016/2017 protocols. The 12.5% domestic rate typically applies in full.

Debt-oriented mutual funds (post-April 2023 purchases):

• Gains are taxed at the NRI's slab rate, regardless of holding period — the LTCG preferential rate was removed in Finance Act 2023 for debt MFs.
• Grandfathering: debt MF units purchased before 1 April 2023 retain the pre-amendment regime (LTCG 20% with indexation after 3-year holding) until sold.

Hybrid mutual funds: treated based on actual equity exposure. ≥65% equity: equity MF treatment. 35-65% equity: a specific balanced-advantage category exists with a 12.5% LTCG + INR 1.25 lakh exemption treatment (post-2024 rules). <35% equity: slab-rate treatment like debt MFs.

TDS by AMC: deducted at source for NRIs at the applicable rate.

Repatriable scheme sales: proceeds credit to NRE account; repatriable freely outside India without USD 1M cap.

Non-repatriable scheme sales: proceeds credit to NRO; repatriation up to USD 1M per financial year with Form 15CA + 15CB.

ITR filing: NRIs file ITR-2 (or ITR-3 if business income). Capital gains from Indian mutual funds are reported in Schedule CG. TDS deducted by the AMC is claimed as credit. Refund if excess TDS.

Section 115A election: NRIs can choose the concessional 20% rate on specific income heads (not applicable to equity MF capital gains, but relevant for debt-MF dividend income).

FATCA + CRS: the Indian AMC reports NRI holdings to the IRS (if US NRI) via FATCA, and to the host country tax authority via CRS (if UK / Singapore / Australia / UAE / Canada NRI). This means your Indian MF holdings become visible to your country of residence. US NRIs may face PFIC (Passive Foreign Investment Company) treatment on Indian MFs — the IRS taxes PFIC distributions and gains at punitive excess-distribution rates unless a QEF or MTM election is made annually. This is why many US NRIs avoid Indian MFs entirely.