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FAQ NRI's
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Who can be called a Non Resident Indian (NRI)?
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A non-resident Indian (NRI) is a person resident outside India who is an Indian citizen who stays abroad for employment / carrying on business or vocation outside India or stays abroad under circumstances indicating an uncertain duration of stay abroad or a person of Indian origin resident outside India and includes a student who has gone outside India for further studies.
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Who can be called as a Person of India Origin (PIO)? Who is a Foreign Institutional Investor (FII)?
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Person of Indian Origin means a citizen of any country (other than Bangladesh or Pakistan), if:
he at any time held an Indian passport; or
he or either of his parents or grandparents was a citizen of India by virtue of the Constitution of India or the Citizenship Act,1955 (57 of 1955); or
he is a spouse of an Indian citizen, or of a person referred to in (a) or (b) above.
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Who is a Foreign Institutional Investor (FII)?
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An FII means an institution established or incorporated outside India, which proposes to make investment in Indian securities, and is registered with SEBI.
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Can an NRI maintain a bank account in India?
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Yes. NRIs can maintain accounts in rupees as well as in foreign currency. Accounts in foreign currencies can, however, be maintained in India with authorized dealers only.
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What are the different types of bank accounts permitted to be maintained by NRIs / PIOs?
The different kind of bank accounts and their characteristics are depicted in the following table:
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Particulars
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Non Resident [External] Rupee Account Scheme (NRE)
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Foreign Currency Non-resident Bank Account Scheme (FCNR)
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Non Resident Ordinary Rupee Account Scheme (NRO)
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Account Maintained in currency
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Indian Rupees
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US $, GBP, Yen, Euro, DM, Pound Sterling
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Indian Rupees
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Account type and tenure
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Normal Bank Account
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Term Deposit for a specific period of 1 year and above but less than 2 years, 2 years and above but less than 3 years and 3 years.
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Normal Bank Account
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Whether Repatriable
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Yes. Deposits as well as interest are repatriable.
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Yes. Deposits as well as interest are repatriable.
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No. Only interest is repatriable.
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Investment could be done in Mutual Fund
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Yes
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Yes
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Yes
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What is the procedure for Investment of NRI / PIO / FII
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The following summary outlines the various provisions related to investments by Non-Resident Indians (NRIs), Persons of Indian Origin (PIO s) 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'), as they stand on the date of this abridged Offer Document.
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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 / authorized dealers with respect to the specific tax and other implications arising out of his or her participation in the schemes.
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Purchase Applications
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1. NRI s and other overseas investors can invest in mutual fund schemes on 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 (ISC).
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2. All Cheque / demand drafts accompanying the application form must be made in favour of "Selected Mutual Fund - Scheme Name" and crossed "A/c payee" only and should be made payable at a city where the application is accepted by the Mutual fund ISC or any Karvy ISC.
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3. Once an account is opened the investor may purchase additional units by filling-up the Common Application Form or by simply filling in the account number in the application form and mailing the same to a Mutual FUND ISC, along with the cheque or the bank draft.
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Repatriable Basis - NRIs, PIOs
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In case of NRIs /PIOs seeking to apply for purchase of units on a repatriable basis, payments may be made by way of inward remittances, or by way of 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 Mutual Fund ISC.
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Non-Repatriable Basis - NRI s, PIO s
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In case of NRI s / PIO s seeking to apply for units on a non-repatriable basis, payments may be made by way of inward remittances, or by way of cheques / demand drafts drawn on the NRE / FCNR / NRO account of the investor [Clause 3(3) of the Regulations], payable at the city where the application form is accepted by any mutual fund ISC.
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FIIs
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FIIs may pay for their subscription amounts out of funds held in Foreign Currency Account or Non-resident Rupee Account maintained in a designated branch of an authorized dealer [Clause 3(1) of the Regulations]. Payments may be made by way of cheques payable at a city where the application is accepted by any mutual fund ISC.
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Similarly, in case of an application made under a Power of Attorney or by an FII, the original Power of Attorney (or a duly notarized certified true copy thereof), or the relevant resolution / authority to make the application, along with a certified copy of the Memorandum and Articles of Association and / or bye laws and Certificate of Registration should be submitted to the nearest ISC. The officials should sign the application under their official designation.
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The NRIs / PIOs / FIIs shall also be required to furnish such other documents as may be desired by the fund in connection with the investment in the schemes.
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Does an NRI, FII require any approval from the RBI to invest in mutual fund schemes?
No special approval is required.
NRIs / PIOs / FIIs have been granted a general permission by RBI [Schedule 5 of the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000] for investing in / redeeming units of the schemes subject to conditions set out in the aforesaid regulations.
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Can an NRI invest in foreign currency?
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An NRI choosing to invest in a mutual fund cannot make the investment in foreign currency. (Any investment in India except in FCNR account is in rupees only) He needs to give us a Rupee cheque from his NRE, NRO, and bank account in India. He may also send a Rupee cheque from abroad payable in a bank in India.
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Whether the income earned on Investments is repatriable?
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NRIs / PIOs can invest in units of the schemes on a fully repatriable basis or on a non-repatriable basis where the principal is non-repatriable, but the Income distributed is repatriable.
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Can NRI / PIO / FII make investments in a mutual fund in foreign currency? Can the foreign bank detail be given?
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The answer to both the questions is No.
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Can an NRI gift the units of a mutual fund to another NRI?
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The Foreign Exchange Management Act, 1999 (the "Act") or the rules or regulations under the Act does not contain any specific provision, which prohibits an NRI from gifting the units of a mutual fund to another NRI. However, the RBI may by regulations prohibits, restrict or regulate the transfer or issue of units by a person resident outside India. Currently there are no regulations issued by the RBI prohibiting an NRI from gifting units in a mutual fund.
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For an application for investment when will the NRI be allotted units?
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If an application is received before the prescribed cut-off timings on any business day, the allocation of units will be at the applicable NAV adjusted for entry load, if any on the particular scheme. All applications received after the prescribed time will be treated as having been received on the next business day and the units allotted accordingly.
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What is the redemption procedure?
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All schemes of the selected mutual fund are an open-ended scheme, which means they can be purchased or redeemed at any point of time. In order to redeem funds the investor needs to submit the redemption request in original at the nearest Investor Service Centre. All the redemption request forms must contain the Investor's folio number, the amount / unit he would like to redeem and should be duly signed by the investors on record or their POA holders. Redemption requests by telephone, telegram, fax or email will not be accepted.
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How will the redemption proceeds be paid?
Redemption proceeds will be paid by a payable at par cheque and payments will be made in favour of the first investor and the bank account number shall be mentioned on the cheque as well.
Redemption proceeds / repurchase price and / or dividend or income earned (if any) will be payable in Indian Rupees only. The mutual fund will not be liable for any loss on account of exchange fluctuations, while converting the rupee amount in US dollar or any other currency.
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What is the procedure for the repatriation of redemption proceeds?
Investments made on Repatriation basis
Under the exchange control regulations, general permission is granted to authorised dealers to allow repatriation of proceeds of investments made under Repatriable Schemes. 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, after payment of tax, if any.
In the case of an FII, the designated branch of the authorized dealer may allow remittance of net sale / maturity proceeds (after payment of taxes) or credit the amount of sale / maturity proceeds to the Foreign Currency account or Non-resident Rupee Account of the FII investor maintained in accordance with the approval granted to it by the RBI [Clause 5(i) of the Regulations].
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
Account of the non-resident investor maintained with an authorized dealer in India [Clause 5(ii) of the Regulations].
For transfer to overseas account of the investor mutual fund will not be responsible and the investor will have to contact the authorized dealer for the same
Investment made on 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 out of India and the same may be credited to the NRO account of the non-resident investor [Clause 5(ii) of the Regulations]. However, the interest earned on an NRO Account is repatriable.
Similarly, investments in units purchased in Rupees while the investor was resident of India and becomes non-resident subsequently will not qualify for repatriation of repurchase proceeds of units.
The entire income distribution on 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.
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The entire income distribution on 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.
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What are the applicable provisions of direct taxes on mutual funds and NRI / PIO / FII?
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As per the taxation laws in force as at the date of updating this document, the tax benefits that are available to the investors investing in the Units of the Scheme(s) are stated herein below.
The tax benefits described in this Document are as available under the present taxation laws and are available subject to relevant conditions. The information given is included only for general purpose and is based on advice received by the AMC regarding the law and practice currently in force in India and the Investors/Investors should be aware that the relevant fiscal rules or their interpretation may change. As is the case with any investment, there can be no guarantee that the tax position or the proposed tax position prevailing at the time of an investment in the Scheme will endure indefinitely. In view of the individual nature of tax consequences, each Investor is advised to consult his/ her own professional tax advisor.
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(A) To the Mutual Fund
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The entire income of the mutual fund will be exempt from Income Tax in accordance with the provisions of Section 10 (23D) of the Income Tax Act, 1961 ("the Act")
The mutual fund will receive all income without any deduction of tax at source under the provisions of Section 196(iv), of the Act. However, on income distribution, if any, made by the mutual fund, the fund will be liable to pay additional income-tax under Section 115R of the Act, at 12.5 per cent (plus surcharge as applicable from time to time) on the amount of income distributed by the mutual fund declared under the schemes on or after April 1, 2003.
However, these provisions will not be applicable to any income distributed by an open-ended equity oriented fund (where more than 50 per cent of total proceeds of the mutual fund are invested in equity shares of domestic companies as defined in Section 115T of the Act) for a period of one year commencing from April 1, 2003.
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(B) Non-Resident Assesses:
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The following summary outlines the key tax implications applicable to an NRI / PIO / FII based on the relevant provisions under the Income-tax Act, 1961 ('Act'), Wealth-tax Act, 1957 (collectively called 'the relevant provisions'), subsequent to the amendments enacted by the Finance Act 2003.
i) Income other than Capital Gains
As per the provisions of Section 10(35) of the Act, any income received in respect of units of a mutual fund specified under Section 10(23D) of the Act on or after 1.04.2003 is exempt from income tax in the hands of the recipient Investors.
ii) Capital Gains
Units of the scheme which are held as capital asset for a period of more than twelve months preceding the date of transfer, will be treated as a long-term capital asset as per the proviso to sub-section (1) to section 112 of Income-tax Act.
Also, sub-section (7) of section 94 of the Act provides that loss, if any, arising from the sale/transfer of units (including redemption) purchased up to 3 months prior to the record date and sold within 3 months after such date, will not be available for set off to the extent of income distribution (excluding redemptions) on such units claimed as tax exempt by the Investors.
ii - (a) Foreign Institutional Investors
Long-term capital gains on sale of Units, would be taxed at the rate of 10% under Section 115AD of the Act. Such gains would be calculated without indexation of cost of acquisition. Short-term capital gains would be taxed at 30 per cent and without conversion of cost of acquisition and full value of consideration in foreign currency, as the first proviso and second proviso to Section 48 do not apply to Foreign Institutional Investors by virtue of Section 115AD(3) of the Income Tax Act.
The said rates would be subject to applicable tax treaty relief. The above tax rates would be increased by applicable surcharge.
No tax would be deductible at source from the capital gains (whether long-term or short-term) arising to an FII on repurchase/redemption of units in view of the provisions of Section 196D(2) of the Act.
ii - (b) NRIs / PIOs
Long-term and short-term capital gains arising to NRIs / PIOs / from the transfer of units of the Scheme, will be taxable at the following rates:
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Short Term Capital Gains
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Rate applicable as per the prescribed slabs in the case of NRI s / PIO s and in the case of at the applicable rates
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Long Term capital gains
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20 per cent with the cost inflation index benefit or 10 per cent without the cost inflation index benefit, whichever is lower
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* plus surcharge as may be applicable (Refer Note 1).
Tax Deduction at Source*
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Short Term Capital Gains
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As per the provisions of Section 195 of the Act, tax is required to be deducted at source at the rate of 30 per cent if the payee is an NRI/PIO.
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Long Term capital gains
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Tax is required to be deducted under Section 195 read with Section 112(c) of the Act at the rate of 20 per cent in case of NRIs / PIOs.
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* plus surcharge as may be applicable
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iii) Wealth Tax Benefits
Units held under the Schemes are not treated as assets under Section 2(ea) of the Wealth Tax Act, 1957 and are therefore not liable to wealth tax.
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Note 1: Surcharge is levied as under
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Assesses
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Rate Of Surcharge Applicable
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NRIs / PIOs / Non-Corporate FIIs Where the Taxable Income Is less than Rs. 850,000 per annum
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Nil
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NRIs / PIOs / Non-Corporate FIIs Where The Taxable Income Is In Excess of Rs 850,000 per annum
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10 Percent
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Corporate FIIS
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2.5 Percent
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Can an NRI fax a request followed by the original documents?
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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.
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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.
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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.
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