Widely read:
Overseas Citizen of India (OCI) is an immigration status permitting a foreign citizen, who is of Indian origin, to live and work indefinitely in India. One of our readers had this query if they can invest in a mutual fund in their son/daughter's name, who is an OCI.
OCIs are treated on par with NRIs when it comes to investing in mutual funds. NRIs can participate in buying and selling mutual funds in India but they need to follow certain regulations. If you plan on investing in your child's name, you can only invest through their personal bank account. Mutual funds do not accept money from third parties. The investment money has to necessarily flow from the bank account of the investor in whose name the units are to be issued.
Also note that, as per Foreign Exchange Management Act (FEMA), NRIs can't park the money in a regular savings account. You are required to open either NRE or an NRO account to invest in mutual funds.
Further, it is to be noted that some mutual fund houses do not accept mutual fund applications from NRIs based in the US and Canada. This is due to the additional paperwork required under the Foreign Account Tax Compliance Act (FATCA). So, please check if the fund you want to invest in is FATCA compliant.
When it comes to taxation, it is the same as any resident Indian. If you invest in an equity-oriented fund, and your holding period is greater than a year, you will have to pay a tax of 10 per cent if the gains are above Rs 1 lakh. If your holding period is less than a year, you're taxed at 15 per cent. If you're invested in a non-equity fund, your returns are added to your taxable income and taxed as per the applicable slab if your holding period is less than three years, but if it is more than three years, you will be taxed at 20 per cent with an indexation benefit.
In the case of an NRI, you will now be subjected to Tax Deducted at Source (TDS). At the time of redemption, the fund house generally credits the proceeds after deducting the applicable taxes. Also note, that if your country has a Double Taxation Avoidance Agreement (DTAA) with India, then you will avoid paying tax both in your resident country and your home country.
Suggested read:
What to do with your investments when you become an NRI?
This article was originally published on July 13, 2022.
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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