Non-Resident Indians (NRIs) can also invest in India without facing any major trouble, unless and until they are staying compliant in a fast-changing regulatory and tax environment. From KYC and FATCA
declarations to choosing the right bank account and understanding TDS, a small miss can disrupt investments or delay redemptions.
According to Mayank Bhatnagar, Co-founder & COO, FinEdge, compliance is the backbone of a smooth investment journey for NRIs.
“For NRIs, the real challenge isn’t investing, it is staying compliant in a dynamic regulatory environment. Non-compliance can mean investments are stopped or redemptions don’t happen when you need them,” Bhatnagar says.
NRE vs NRO: where the investment starts
An NRI cannot invest in mutual funds using a regular savings account. Investments must flow through either an NRE or NRO account, and this choice directly impacts repatriation.
Money invested via an NRE account offers easier and largely seamless repatriation. In contrast, investments from an NRO account require additional documentation at the time of taking money back overseas. “The bank account you choose decides how smooth your exit will be later,” Bhatnagar points out.
Taxation: TDS is unavoidable
Tax is the next layer NRIs need to be careful about. Any capital gain or dividend payout from mutual funds attracts Tax Deducted at Source (TDS). This is mandatory for NRIs and applies even if the final tax liability is lower.
For equity mutual funds, taxation depends on the holding period. Long-term capital gains and short-term gains are taxed at different rates. Debt mutual fund gains, meanwhile, are taxed based on the applicable income tax slab.
“The good part is that excess TDS can be claimed as a refund while filing income tax returns in India,” Bhatnagar notes, adding that many investors overlook this step.
Compliance can’t be ignored
Beyond tax, NRIs must ensure their KYC, tax residency status and FATCA declaration are always updated. These are not one-time requirements. Any mismatch or outdated information can lead to transaction blocks or delays.
Bhatnagar advises NRIs to see compliance as an ongoing process rather than a formality. “Knowing the rules is important, but staying compliant by keeping records updated is what keeps investments running smoothly,” he says.
Expert guidance makes a difference
Tax professionals echo this view. Ruchika Bhagat, Managing Director at Neeraj Bhagat & Co, says NRIs must also be mindful of international tax implicatios.
Unlike resident investors, TDS is deducted at source for NRIs at the time of redemption, regardless of actual tax liability. Filing returns in India becomes essential to claim refunds. In addition, NRIs should evaluate the benefits available under Double Taxation Avoidance Agreements (DTAA) to avoid paying tax twice on the same income.
