50 Responses to Where should an NRI Invest to earn Secured, After-Tax return? NRE Bank FD or Money Market (Liquid) Fund: An Analysis

  1. Uday says:

    I am a US citizen (after being green card holder). I have invested money in India in ULIPs from my NRE account. I now realize that these ULIP accounts are considered as PFICs for US Tax purposes. What I am not clear about is, what amounts will be considered as Income each year for US tax return. As there is lock-in period of 5 years in these ULIPs, I do not actually withdraw any amount from the ULIP. The NAV rate is shown for each fund in the ULIP, but these keep changing (up and down) throughout the year. So, in the first year, based on NAV, I have an unrealized gain . Should this be shown as a Gain in US Tax Return? But afterwards, NAV may go down considerably, and when I actually withdraw my money, I may have a overall Loss in a particular ULIP. So my earlier year Gain would not be actually a Gain, and yet I would have paid Tax on that amount. So, can I show the final Gain/Loss after 5 years OR is it compulsory to show Gain/Loss each year? Thanks.

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      1. You would need to calculate the notional gain based on the valuation of your investments. Please do not forget to deduct the cost (premium paid) during the year as well as the opening balance from the closing value to calculate the gain.
      2. If NAV goes down, you will be allowed to adjust respective year’s return provided you have paid tax based on NAV in earlier years.
      3. Reporting of income for PFIC investment gives few options – including reporting in the year of sale; however, tax liability could be higher due to interest/penalty provision. I would recommend consulting your CPA and evaluating all options before making a decision. Thanks.

  2. Satish says:

    Hi,

    I live in US from 2016. I made mutual fund investments before 2016. while I was an Indian resident. Do I need to file PFIC and pay taxes on unrealized gains? If not required, should I show the same investment in FBAR?

    Thanks,
    Satish

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      1. Yes. Mutual funds are considered as PFIC investment and you would need to report as such in form 8621.
      2. FBAR is a department of treasury requirement and you would also need to include the mutual fund investments in FBAR as well. Thanks.

      • Satish says:

        I invested using money made in India and the gains are unrealized.Should I still pay taxes for the investment made before coming to US.

        • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

          1. Unrealized gains of only mutual funds are taxed in USA as it is considered as a investment in PFIC – Passive Foreign Investment Company. You would not pay tax on the unrealized gain on the equity shares.
          2. The LTCG on equity shares has been exempt till March 2018 and only 10% thereafter of any gain above January 31, 2018 value. However, it may become taxable from the date of acquisition if you sell the same after you become a US resident for tax purpose.
          3. If you are not US resident (in India and no greencard/citizenship) and will be a US resident in future, it is recommended to structure your investment in the manner that is tax efficient. Thanks.

  3. Kashmira says:

    Hi Jigar,
    My green card is in process. My current investments are govt tax free bonds, PPF, mutual funds. Can you please advice what I can do to reduce tax in US when I get my green card. I’m aware I cannot hold govt bonds or PPF after I get my green card. So how and where Can I transfer these?
    Thanking you in advance.

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      1. Greencard is immigration issue. PPF/investments are residence issue. If you continue to stay in India and are an India resident, you may still own PPF account. Only after you become NRI (live outside India), you are not allowed to have a PPF account.
      2. As with Greencard, you would be considered as a US resident for tax purposes, your global income needs to be included in your US tax return and all your Indian income, even if exempt (PPF, NRE FD, LT capital gain on equity, etc.), would become taxable. It is advisable to plan your assets and investments for better tax planning and efficiency. Thanks.

  4. Rakesh Kumar says:

    Hi Jigar,

    I have a question regarding the PPF rules for NRIs that the government changed from October 3rd 2017 which says the PPF accounts operated by NRIs will deemed to be closed from the day he becomes NRIs and nominal 4% rate will be paid to them.

    I am a NRI since last 10 years and had a PPF account opened before I became NRI which is due to mature in 2019 on completion of 15 years. I continued investing in it every year as earlier rule allowed to continue till maturity if it was opened before becoming NRI.

    My question is
    1. will it be deemed to close in 2007 when I became NRI ?

    2. as interest has been accumulating in it every year at the government PPF rate. will the interst paid already to me over the years will be readjusted to 4% for past 10 years and the maturity amount paid accordingly?

    3. or it will be deemed to close on 3rd of Oct when the new rule came in to effect and interest after 3rd Oct will be paid as per 4%?

    Please share your advice.
    Thanks for advising all of us here.

    Rakesh

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      This is a practical situation for many NRIs. While the notification has come out, there is no clarification of this practical situation till date. I expect the government will come up with some clarification by Dec. 2017.
      1. As per notification, your PPF account deemed to be closed in 2007. However, as you were holding the account legally until Oct 2, 2017, it would be difficult to implement.
      2. If account is deemed to be closed in 2007, the interest rate would be readjusted and balance will be changed. If not, 2017-18 interest will only be adjusted.
      Sorry for not giving your clear answer but there is not clarity. Thanks.

  5. VIRENKUMAR VITTHALBHAI PATEL says:

    Hi
    I am an Indian resident at present.I have got job in abroad which is rotational(1 month work abroad and 15 days off(unpaid) in India.I am confuse whether I can open NRI account and remit my salary to my NRI account or I can still continue with my domestic saving account and remit my salary to saving account.
    I am going to start my work in September 2017 so my stay in abroad will be less then 182 days due to my rotational job.So as per my understanding I have to pay tax in India for APRIL2017-MARCH2018 but not sure about bank account whether I can have NRI account or not.
    Can a person open NRI account before departure from India.
    kindly advise me.
    Thanks

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      As your stay in India will be less than 182 days as you would be leaving India for employment, you may be an NRI under FEMA and allowed to have NRO/NRE account. However, as you would start your job in September, I would recommend that you contact your bank and understand the requirement. Thanks.

  6. Harshal says:

    Hi
    ref to below mention link , there is some circular from IT regardinf seafares income.

    http://www.dnaindia.com/money/report-salary-received-in-nre-ac-is-not-taxable-2408518?platform=hootsuite

    its Not very clear information anyone get from either circular or this article . if you know this issue can you please explain whats current situation .
    Also if circular says non resident – seafarers, why they need to tell income is tax free , non resident status it self enough if income generated aboard will be tax free.
    or is it non resident status is different in seafarers case ?

    thanks

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      1. For NRI, any income accrued in India or received in India is taxed in India. So if someone works outside India but chooses to directly credit his NRE account, it can be said that the income is received in India and may be taxable in India. Only if the income is received outside in India in a foreign bank account and on the same day it is transferred to his NRE account, it changes the nature from “received” to “remitted”.
      2. Usually, NRIs are a resident of any country outside India and will have a bank account. However, for seafarers, they are not a resident of any country as they live in international waters. As a result, they may not have any bank account outside India and would have no option but to directly credit the NRE bank account in India. Due to the difficulties faced by the Seafarers, IT department came up with a circular to address this practical issue.
      I hope this helps to understand the situation and answers your questions. Thanks.

  7. Dheer says:

    Hello Jigar,

    Thanks for posting such an expansive collection of information on NRI finances and accounts. I am a bit unsure about treatment of interest on NRE saving accounts. Is this interest taxable within India? I know no TDS is deducted on this interest, but would like to be sure if it needs to included as income on Indian ITR (basically to claim refund of TDS of NRO account interest). I am an NRI, and my income in India is less than the threshold for filing ITR, however, if I had to include interest income from NRE account, it’d be over the threshold.

    Secondly, in your opinion, would HDFC ProGrowth Plus life policy with inside cash build-up (via Blue-chip fund option within the policy) be considered an PFIC for US tax-purposes, or simply a section US CFR section 7702(g) non-qualifying policy?

    Thanks in advance for any guidance you could provide about these questions.
    Best Regards

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      1. NRE interest is NOT taxable in India. It is reported as “Income Exempt from Tax” in the return. However, you would need to report the same in your US tax return and pay tax in India.
      2. I am a conservative person and would think the ULIP policy will qualify as PFIC. Thanks.

  8. Venkat says:

    Hi Jigar,

    Query about PPF.

    I’m an NRI for the past year. I have my PPF account back home. My first 5 year period started last year (after completion of initial 15 years).
    (1) I believe I can continue to contribute for the next 4 years, though my status is NR?
    (2) Can I renew further (second 5 year period) If I happen to be an NRI later?

    Many Thanks for your valuable time.

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      1. Yes, provided you renewed the PPF account while in India (before you left India).
      2. No. NRIs are not allowed to invest in PPF. Only because there is a lockin, NRIs are allowed to continue until maturity provided PPF account was opened as resident. Thanks.

  9. Navin says:

    Dear Mr. Jigar,
    I really appreciate the hard work you have put into the set up of this blog, it is truly very informative. There are a few questions I would like to ask you.
    I am a Canadian Resident and would like to enquire about the tax implications of Investments made in India in a Short Term Debt Fund with daily dividend distribution which is added to the fund.
    Will I be required to report all such distributions as
    1. My Taxable income or
    2. Will the Tax treatment be based on Adjusted Cost basis and Taxed at the time of selling the units.
    3. What will be the implications of Exchange rate be given that the exchange rate has been on the decline for CAD.
    4. I have also redeemed some amounts during the year.

    Thanks in advance for your response.

    Best Regards

    Navin

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      1. I would not advise ANY NRIs for investing in a mutual fund with a DIVIDEND option.
      2. While dividends are reinvested, they are first declared and became income. So you would need to include the dividend income in your tax return.
      3. The nature of income is dividend now and would be capital gain when you sell. As dividend is reinvested, your adjusted basis (cost) would increase.
      4. My advise would be to redeem everything and reinvest as growth option. I would also recommend to change your advisor as he is not equipped to serve NRIs. Thanks.

  10. Kamal says:

    Hi,

    In your article it is mentioned that For US – PFIC gains will be treated as capital gain tax rate (15% rate) but I do not think that is correct. It will be treated as ordinary income.

    <>

  11. Kishore says:

    Hi Jigar,

    First off, great job on providing all this information man! Super helpful. Also, on reading the Q&A’s, appreciate your patience in answering the questions, in spite of several of them being repeat questions.

    Ok my question now (and apologize in advance if this has also been answered already) – In order to repatriate money back to US from a NRE account –
    1. Is there any limit on how much money can be transferred?
    2. Do banks have any daily max limits for wire transfers?
    3. Based on my research, there are limited options to wire money to the US – SBI, Axis, HDFC, ICICI, Citi Bank, and Western Union is what I could find. Do you know how the INR-USD exchange rate is applied, I.E. Can that be locked at time of transaction? Also, if the exchange rate during the time of transaction is let’s say 67 Rupees/Dollar, Does the bank charge a higher rate or take a cut – 67.5 or 68?

    Thanks in advance man,

    Kishore

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      1. No Limit if money is already in NRE account.
      2. No
      3. If you are transferring big amount, it is better to wire the funds (pay international wire charges), contact the relationship manager and ask for a favorable exchange rate. The favorable rate would more than make up for the charges for international wires. Also, note that the bank would have a buying and selling rates of forex and are available on their website. The difference between buying and selling rate is their income. You would find about Rs. 2-3 difference per $ so plenty of room for negotiation. Thanks.

      • Kishore says:

        Thanks for the response Jigar. Also, my understanding is that I don’t need a CA certificate for transfer from NRE account to my US bank. Please confirm if this is the case.

  12. herschel says:

    Hi Mr. Patel,

    Do you offer Fee-Only Financial Planning services to NRI’s? If so, are you SEBI registered?

    And thanks for the informative write up.

    Herschel

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      Currently, a Chartered Accountant is exempted from registration. As per revised guidelines, CA would be required to be registered in future. While we are not registered now, we would be in future. Currently, we are a CA firm registered with ICAI providing consulting services in many areas. Thanks.

  13. Rajesh says:

    Hi – I would like to get clarity on my FD. I am out of India for about last 3 years and all my saving are there as a FD in Indian account. Lack of awareness, I did not create any NRO / NRE account still and I am maintaining all my funds in Indian account directly. I am earning around 1.5 lakhs INR as a FD interest. I know the interest amount is taxable in india. But this interest amount is falling under the cap of 2.5 lakhs. Can you please advise me how this Interest 1.5 lakhs will be treated? Note that, I dont have any other income in India other than this interest. So my earning through out the year was only 1.5 lakhs. Should I need to pay income tax for this 1.5 lakhs interest amount? pls advice..

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      You are not required to pay any tax. However, TDS would have been deducted on the FD interest income so if you want to claim the refund of tax, you would need to file the tax return and get the tax refund. Thanks.

  14. SimpleQ says:

    Thanks in advance for answering.
    1. I am wondering whether regular LIC policy fall under PFIC?
    2. Is all Indian MF (Reliance, HDFC, others) considered PFIC?

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      Thank you for your comment. However, please post with your correct name/email to expect honest answer. Thanks.

  15. Michael says:

    Hi ! I am an NRE. On the advise on my Bank Manager I opened an NRO account with the same Bank using my NRE money only for paying premium for HDFC standard Life insurance policies which I paid premium from my NRO account for 3 years as determined by the policies. After 8 years, since the policies were not doing well, I have surrendered those policies and the funds are in my NRO account. I want to transfer these funds from my NRO to NRE account as I do not need this NRO account any longer. Please advise do I need to submit form 15 CA & 15CB to my bank or can I transfer the funds from NRO to NRE directly.

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      I think it will be required. However, you may follow up and insist the bank to make sure the money is credited/ transferred to NRE account without 15CB/15CA giving evidence that money was originally transferred from USA and not much gain/ taxfree income in India. Thanks.

  16. Uncle N says:

    With your 2nd example you have not explained the tax issues – “Overall, Mr. A would include $24,829 as income and pay only $7,449 as taxes over 5 years.” – But How was this calculated (understand the currency conversion part but don’t understand the tax rates)?

    Would have been helpful if you could explain this as to what percentage in taxes is paid each year in capital gains and how you calculated this ie. show the 2nd table also in Rupees instead of simplifying with the currency conversion rate so people (amit patel) understand it better. Also, while NRE FD interest is not taxed in India, (taxed only in the USA), aren’t capital gains from Funds TDS’d in India in the Demat account by the bank or brokerage and then again in the USA?

    Hopefully you will update the tables to exactly show what the principal at the beginning of each year, the income earned in Rs (the second table should also show the gains in Rs) and corresponding taxes paid to both in India (if any) and the US at a standard capital gains tax rate.

    Also, if possible it would be nice to know what are reporting requirements of a US citizen for Liquid Funds accounts ie. are they need to be reported on FBAR and/or form 9838?

    Thanks!

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      1. Different CPAs have different way of reporting mutual fund. I have assumed that a person is opting for mark-to-market and reporting income based on value on the year end (which is a better way). The unrealized gain would be included in the income and tax would be paid based on the tax slab of respective person. I have assumed marginal rate of 30% i.e. rate of tax for additional income.
      2. Any tax you have paid in India (TDS), you can claim it as a foreign tax credit in your tax return against your foreign income.
      3. Assuming the inflation index rate of 10%, there may not be any tax to be paid in India. If any, you would get the credit in your US tax return as mentioned in #2 above.
      4. You would report the MF investments in FBAR and Form 8621. The Bank FD is to be reported in FBAR and 8938. Thanks.

  17. amit patel says:

    why is the mutual fund gain going in negative in 1st year

    i dont understand that table at all

    how did you arrive at those $ values

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      As Rupee depreciation was more than the return on investment, gain is negative in year 1. Also, $ values are taken from the US Department of Treasury website. I think the table is self-explanatory but if you have any question, please post. Thanks.

  18. Kay says:

    First of all I want to thank you for this detailed blog; I just started reading it. I am an NRI, USA citizen live in US. I receive rental income in India and I am planning to reptraite my rental income in rs to $$ after taxes, into my NRE account that which I want to invest. Could you please name some good liquid / liquid plus mutual funds that you mentioned about in this article. Thanks in adv

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      While it is always recommended to invest from NRE account, you may also invest in liquid funds from NRO account. As you are a US resident, you have very few options and keep on changing as funds may start or stop receiving application/investment any time. I would recommend you to contact us when you are ready to invest i.e. once funds are in NRE account. Thanks.

  19. sonali says:

    which currency FCNR is recommended with current geopolitical situation. I live in SE asia and earn in SGD and looking at 3-5 year FCNR deposits. I am debating between USD/ AUD/ just keep in SGD

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      I would recommend SGD only. Geopolitical risk would not affect your return as you will be spending/utilizing the funds in SGD only. Thanks.

  20. sarish jain says:

    Can you point me to a good way to invest in liquid / liquid plus mutual fund. an example?

    I have so far invested in mutual funds in india only via insurance linked plans, but fees there are excessive and reduced rate of return (still better then not doing it)

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      Please contact us via email or phone and we will help you. Thanks.

      • Krishan Dua says:

        Hi
        Hi
        Your articles are very very useful for all the NRIs
        Can you send me your complete email address, website and postal address enable us to contact you.

        Secondly I would also like to know that being NRI whether
        from NRO To NRE transfer shall be in Indian Rupees or in
        CDN Dollars because we are in Canada.

        Please clarify because it us no where mentioned.
        Thanks
        With Warm Regards

        • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

          1. The contact details are available on page “Contact Us”.
          2. Both NRO and NRE are rupee denominated accounts so the transfer would be in INR only. Once funds in NRE, you can transfer to Canada or keep FCNR FD in CAD with Indian bank. Thanks.

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