Who is a NRI?
According to the Foreign Exchange Management Act (FEMA), 1999, a Non-Resident Indian (NRI) is a person resident outside India who is either a citizen of India or a Person of Indian Origin (PIO). A person who has been in India for 182 days or more during a financial year and 365 days or more during the preceding four financial years qualifies as a resident.
Those staying for more than 60 days but less than 182 days in a financial year, even if their total stay in the previous four years exceeds 365 days, are considered NRIs. A person deputed overseas for a job for more than 6 months also qualifies as an NRI. However, individuals abroad for short-term business, medical, or educational purposes are not considered NRIs.
Who is a Person of Indian Origin (PIO)?
A Person of Indian Origin (PIO) is a citizen of any country (except Bangladesh or Pakistan) who has held an Indian passport, or whose parents or grandparents were citizens of India, or who is the spouse of an Indian citizen.
What is a PIO Card?
A PIO Card is issued by the Ministry of External Affairs, Government of India, through Indian missions abroad to persons of Indian origin. More details are available at http://mha.nic.in/pioscheme.
Types of Rupee Accounts for NRIs
NRIs can maintain three types of rupee accounts in India:
- NRE (Non-Resident External) Account
- NRO (Non-Resident Ordinary) Account
- FCNR-B (Foreign Currency Non-Resident) Account
An NRE account allows free repatriation of funds and can be opened with money remitted from abroad. The balance and interest earned are tax-free in India.
An NRO account can hold income earned in India such as rent, dividends, or pension. Funds are generally non-repatriable, though certain remittances abroad are allowed as per RBI rules.
Difference between NRE and NRO Accounts
Funds in NRE accounts are freely repatriable abroad, while NRO account balances are mainly for local Indian payments. Income not eligible for remittance must be credited to NRO accounts.
Mutual Fund Investment for NRIs/PIOs
Not all Asset Management Companies (AMCs) accept investments from NRIs in the US and Canada due to FATCA compliance. However, the following allow investments: ICICI Prudential, UTI, SBI, IDFC, Nippon India, Sundaram, L&T, and PPFAS Mutual Funds.
NRIs from other countries can invest in almost any Indian mutual fund, on both repatriable and non-repatriable bases, under FEMA regulations.
Dividends and Redemption
Dividends and redemption proceeds are directly credited to the NRI's designated bank account linked to the mutual fund investment.
Indexation Benefit
NRIs enjoy indexation benefits while calculating long-term capital gains tax on debt mutual funds.
Taxation of Mutual Funds
Equity Mutual Funds: Short-term gains (less than 1 year) taxed at 15%. Long-term gains (over 1 year) above â¹1 lakh taxed at 10%.
Debt Mutual Funds: Short-term gains (less than 3 years) taxed as per income slab. Long-term gains (over 3 years) taxed at 20% after indexation.
TDS applies on all NRI capital gains.
Tax Deducted at Source (TDS)
- 17.77% for short-term equity gains
- 35.53% for short-term debt gains
- 23.69% for long-term debt gains
No TDS is deducted for long-term equity mutual fund gains.
TDS Certificate
TDS Certificates (Form 16A) are issued quarterly via email or post and can be accessed at this link.
KYC and FATCA Requirements
- Self-attested PAN and Passport/PIO Card
- Indian and Overseas Address Proof
- Passport-size Photograph
- Completed KYC Form
- FATCA details: Tax number, Income slab, Occupation, Net worth, and Political exposure declaration
Completing KYC in India
NRIs visiting India can complete KYC at any mutual fund office or distributor with the required documents. In-person verification (IPV) will be done simultaneously.
KYC Verification Outside India
NRIs abroad can complete IPV through authorized officials such as notary public, Indian Embassy/Consulate, or branches of Indian banks overseas. KYC status can be checked at https://www.cvlkra.com/kycpaninquiry.aspx.
Investing through Power of Attorney (POA)
NRIs can appoint a POA holder to manage mutual fund transactions. The POA document, signed by both parties, must be submitted to the AMC.
Nomination
NRIs can nominate a resident Indian or another NRI/PIO as a nominee. Similarly, an NRI can be a nominee for a resident Indian's investment.
Investment in Tax-Saving Schemes
NRIs and PIOs can invest in ELSS (Equity Linked Savings Schemes) to avail tax deductions under Section 80C of the Income Tax Act, up to â¹1.5 lakh per financial year.