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NRI Investments in India  

Can an NRI, and FIIs invest in mutual funds in India?
Yes. The following summary outlines the various provisions related to investments by Non-Resident Indians ('NRIs'), Persons of Indian Origin ('PIOs') and Foreign Institutional Investors ('FIIs') in the Schemes of the Mutual Fund and is based on the relevant provisions of the Income-tax Act, 1961 ('the Act'), regulations issued under the Foreign Exchange Management Act, 1999 and the Wealth-tax Act, 1957 (collectively called 'the relevant provisions').

The following information is provided for general information only. However, in view of the individual nature of the implications, each investor is advised to consult with his or her own tax advisors / authorised dealers with respect to the specific tax and other implications arising out of his or her participation in the funds.

Purchase Applications.
NRIs can invest in mutual funds on a Repatriable/Non-Repatriable basis as per the provisions of Schedule 5 of the Foreign Exchange Management (Transfer or issue of Security by a Person Resident Outside India) Regulations, 2000 ('the Regulations') as explained below.

A Common Application Form duly completed together with cheques or bank drafts should be remitted through Investor Service Centres. All cheques/demand drafts accompanying the application form must be made in favour of the scheme names and crossed "A/c payee" only and should be made payable at a city where the application is accepted by any Investor Service Centres.

Repatriable Basis - NRIs, PIOs. 
When NRIs and PIOs apply to purchase units on a repatriable basis, payments may be made inward remittances, or by cheques drawn on the NRE/FCNR account of the investor [Clause 3(2) of the Regulations] payable at the city where the application form is accepted by any Investor Service Centres.

Non-Repatriable Basis - NRIs, PIOs.
When NRIs/PIOs apply for units on a non-repatriable basis, payments may be made by inward remittances, or by cheques/demand drafts drawn on the NRE/FCNR/NRO/NRSR account of the investor, payable at the city where the application form is accepted by any Investor Service Centres.


Foreign Institutional Investors (FIIs).
An investor or investment fund that is from or registered in a country outside of the one in which it is currently investing. Institutional investors include hedge funds, insurance companies, pension funds and mutual funds.     FIIs may pay for their subscription amounts by Indian Rupee drafts purchased abroad, or from funds held in a Foreign Currency account or Non-resident Rupee account maintained in a designated branch of an authorised dealer. The Indian Rupee drafts/cheques should be made payable at a city where the application is accepted by any Investor Service Centres.

When will my NRI purchase take effect? 
If an application is received before the 3 p.m., Indian Standard Time on any business day, the allocation of units will be based on the NAV of that business day. All applications received after the prescribed time will be treated as having been received on the next business day and the units allotted accordingly.


How does an NRI redeem funds? 
In the open-end schemes of mutual fund units can be purchased or redeemed at any point in time. To redeem funds, submit the redemption request to the nearest Investor Service Centre. Your form must contain the investor's folio number and the amount / units you would like to redeem. Redemption requests by telephone, telegram, fax or email that lack valid signatures will not be accepted.

How will the redemption proceeds be paid? 
Redemption proceeds will be paid by cheque. The cheque will be payable to the first unitholder and will include the bank account number. Redemption proceeds/repurchase price and/or dividend or income earned (if any) will be payable in Indian Rupees only.

How can the redemption proceeds be repatriated? 
The investments shall carry the right of repatriation of capital invested and capital appreciation so long as the investor continues to be a resident outside India.
In the case of an FII, the designated branch of the authorised dealer may allow remittance of net sale/maturity proceeds (after payment of taxes) or credit the amount to the Foreign Currency account or Non-Resident Rupee account of the FII, maintained in accordance with the approval granted to it by the RBI.
In any other case, where the investment is made out of inward remittance or from funds held in the NRE/FCNR account of the investor, the maturity proceeds/repurchase price of units (after payment of taxes) may be credited to the NRE/FCNR/NRO/NRSR account of the non-resident investor maintained with an authorised dealer in India

What about redemption proceeds where investments were made on a non-repatriable basis? 
Where the purchase of units is made on a non-repatriable basis, the maturity proceeds/repurchase price of units (after payment of taxes) will not qualify for repatriation and may be credited to the NRO/NRSR account of the non-resident investor.
Where the investment is made out of funds held in a NRSR account, the maturity proceeds/ repurchase price of units (after payment of taxes) may be credited to the NRSR account maintained by the investor with an authorised dealer in India.
Similarly, investments in units purchased in Rupees, where the investor was a resident of India and subsequently becomes a non-resident, will not qualify for repatriation of repurchase proceeds of units.
The entire income distribution on the investment will, however, qualify for full repatriation. Investors are advised to contact their banks/tax consultants if they desire remittance of the income distribution on units abroad.

Is the income/dividend on mutual fund units repatriable? 
The investments shall carry the right of repatriation of capital invested and capital appreciation so long as the investor continues to be a resident outside India. In the case of an FII, the designated branch of the authorised dealer may allow remittance of net sale/maturity proceeds (after payment of taxes) or credit the amount to the Foreign Currency account or Non-resident Rupee account of the FII maintained in accordance with the approval granted to it by the RBI. In any other case, where the investment is made out of inward remittance or from funds held in NRE/FCNR account of the investor, the maturity proceeds/repurchase price of units (after payment of taxes) may be credited to NRE/FCNR/NRO/NRSR account of the non-resident investor maintained with an authorised dealer in India.

What is the tax liability on redemptions? 
Under Section 2(42A) of the Income Tax Act, units of the fund held as a capital asset for a period of more than 12 months immediately preceding the date of transfer, will be treated as a long-term capital asset for the computation of capital gains, thus qualifying for the long-term capital gains tax rate. In all other cases, it would be treated as a short-term capital asset and would be taxed at the short-term capital gains tax rate.

What is the tax liability for income received from your mutual funds? 

As per Section 10(35) of the Income Tax Act, 1961, income received from mutual fund units 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.

Is it mandatory to have a Permanent Account Number (PAN)? 

It is not mandatory to have a PAN for an NRI even if the investment amount is greater than Rs. 50,000. PAN would however, be required if the NRI is required to file a return in India or claim a refund of any taxes paid.

How does one apply for a PAN? 

An application is required to be made in Form 49A .

What is the proof of the Tax Deduction at Source? 
A TDS certificate is issued in the name of the investor mentioning the details of the transaction and the tax deducted. The TDS certificate is commonly known as Form16 A.

When will the TDS certificate be issued? 

A TDS certificate (Form 16A) will be despatched to the investor at his or her registered address along with the redemption warrant.

Can an NRI have a joint account in a mutual fund with a resident Indian? 

Yes. An NRI investor can jointly own a fund account with a resident Indian or a Non-resident Indian.

Is the indexation benefit available to NRIs? 

Yes, if units are held for more than 12 months i.e. on long-term capital gains.

Are fund units liable to the wealth tax? 

No. Units issued to overseas investors 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.

Can dividend received from a mutual fund in an NRO account be repatriated? 

Yes. Income generated from investments (dividend, in this case) done on a non-repatriable basis qualify for full repatriation.

Can an NRI fax a request followed by the original documents? 

No. Units cannot be redeemed or allotted on the basis of fax applications. A request that lacks a valid signature cannot be processed due to legal restrictions.

Can a Power of Attorney (POA) invest on behalf of the NRI investor?

Yes. unlike banks where a POA holder cannot open an account on behalf of the NRI, in a mutual fund the POA has the authority to invest on behalf of the investor and sign documents for initial and additional purchases as well as redemptions.
While applying for purchase of units the POA holder needs to submit the original POA or a copy duly notarised should be submitted. The Power of attorney should contain the signature of both the first holder and the POA holder. Only when the POA is registered does the POA holder have the right to transact on behalf of the NRI investor. His signature will be verified for processing any transaction/request.

Is nomination by NRIs allowed in Mutual Funds? 

Yes. It is allowed only for Individuals/HUFs.

Can a resident Indian have an NRI as nominee? 
Yes. The same rules apply for nominees to resident Indian accounts. An NRI can be a nominee to an account which is in the name of a resident Indian.
Investments by U.S Person
There are certain mutual funds which do not permit investments in their schemes as these are entities who are also governed by the laws in US (for eg Franklin Templeton Mutual Fund) and the Schemes have not been registered in the United States of America under the Securities Act of 1933 which is a mandatory requirement for these fund houses. Applicants for Units may be required to declare that they are not a U.S. Person and are not applying for Units on behalf of any U.S. Person.
The term "U.S. Person" shall mean any person that is a United States Person within the meaning of Regulations under the United States Securities Act of 1933, as the definition of such term may be changed from time to time by legislation, rules, regulations or judicial or administrative agency interpretations.
Funds presently not eligible for investments by US residents are:
Fidelity Mutual Fund
Franklin Templeton Mutual Fund
HSBC Mutual Fund

ICICI Prudential Mutual 
PNB Principal Mutual Fund

Overseas Citizenship of India (OCI)

Who is eligible for OCI?

Persons of Indian Origin, who migrated from India after 26 January, 1950, and

1. who were citizens of India on or at anytime after 26.01.1950 or

2. who were eligible to become Indian citizens on 26th January, 1950 or

3. belonged to a territory that became part of India after 15th August, 1947 and

4. their children and grand children,

whose present nationality is such that the country of nationality allows dual citizenship in some form or the other under the local laws, will be eligible to be registered as OCI. Minor children of such persons are also eligible for registration as OCI. However, minor children, whose both parents are Indian citizens, are not eligible for OCI.

OCI is a passage to become Indian Citizen

The grant of OCI is extended to citizens of all countries (which allow dual nationality) other than those who had ever been citizens of Pakistan and Bangladesh. The amended legislation further reduces the period of stay of ‘two years’ to ‘one year’ in India for OCI, who is registered for five years, to become eligible for grant of Indian citizenship.

Article 9 of the Constitution of India clearly states that a person shall cease to be a citizen of India, if he voluntary acquires the citizenship of any foreign State. Therefore, one cannot have citizenship of any other country, if he is an Indian citizen. The expression ‘dual citizenship’ is, therefore, a misnomer. However, the technical term used for the scheme in the Citizenship Act, 1955 (as amended vide Amendment Act, 2005) is ‘Overseas Citizenship of India (OCI)’.

Persons registered as OCI are not Indian citizens. This is a new category of citizenship created under the statute with certain restricted rights as compared to Indian citizens.

OCIs holder can not hold the following positions:

1. Public employment,

2. election to Constitutional offices like President/Vice President/Judges of the Supreme Court or High Courts

3. Members of Parliament or Legislative Assembly/Council or

4. right to vote under Representation of People Act, 1950.

A person registered as OCI is entitled to the following benefits:

1. Grant of multiple entry, multi-purpose lifelong visa to visit India;

2. Exemption from registration with FRRO/FRO for any length of stay in India; and

3. Parity with NRIs in economic, financial and educational fields except in matters relating to acquisition of agricultural/plantation properties.