I am in USA and want to invest in mutual funds in India. Can you please let me know the process? And also let me know the other investment avenues. Do I need to pay taxes for the income?
US residents are not allowed to make any investment which is not registered with the US Securities and Exchange Commission. Hence, Indian mutual funds are not eligible investment. The way around the rule is to conceal your US residency and provide an Indian address for such investments.
The other way to invest in Indian market is through India dedicated offshore funds which you can buy locally. Apart from that, real estate, gold, portfolio management services and direct equities are other investment options.
In respect of tax obligation arising from mutual funds, NRIs need to pay short-term capital gain tax at 16.99 per cent for equity schemes and 33.99 per cent for debt schemes. Long-term capital gain is tax-free for equity while it is 11.33 per cent without indexation or 22.66 per cent with indexation for debt. Although dividends are tax-free in the hands of the investors, a dividend distribution tax is paid by the AMC, which it deducts from the money that will eventually go to the investors. TDS (Tax Deduction at Source) is applicable for long-term capital gain at 22.66 per cent for debt and is not applicable for equity funds. In case of short-term capital gains, 33.99 per cent is deducted for debt and 16.99 per cent for equity.