Non-resident Indians can invest in mutual funds in India directly using their foreign bank accounts — and do so without any TDS being deducted before receiving funds abroad. This is possible if the NRI chooses to route investments through the GIFT City route.
The Traditional Route vs The GIFT City Route
When investing through traditional channels, non-resident Indians must adhere to several tax and banking rules, such as fulfilling KYC requirements, meeting RBI and FEMA standards, investing only through an NRE or NRO account with an Indian bank, and receiving payments after TDS.
Investing in mutual funds through GIFT City is a very different experience. “Structures operating from GIFT City under the IFSC framework are designed to permit investments in foreign currency directly from overseas bank accounts, thereby reducing currency conversion layers, easing repatriation concerns and aligning the investment ecosystem more closely with international financial centres,” says Sonam Chandwani, Managing Partner, KS Legal & Associates.
The Tax Advantage
One of the biggest draws of the GIFT City route is the tax benefit. In the case of NRI investing in MF, there is an implication of TDS and the AMCs will deduct TDS on redemption and dividend payouts. “From a taxation standpoint, GIFT City offers a clear advantage. Investments such as mutual funds can be structured to be tax-free in India, with no TDS deductions. In traditional routes, NRIs often face TDS and then need to go through the process of filing returns to claim refunds, which can be time-consuming and complex,” says Ankur Choudhary, Co-Founder and Chief Executive Officer at Belong.
Other Investment Options at GIFT City
Beyond mutual funds, there are several other investing options for NRIs at GIFT City. What makes these options stand out is their flexibility and cost-effectiveness.
“One of the biggest advantages is cost efficiency. For example, funds or ETFs domiciled overseas that provide India exposure often come with significantly higher expense ratios. A comparable ETF listed internationally may have an expense ratio of around 0.80 percent, whereas a similar product in India could be available at closer to 0.16 percent,” informs Choudhary.
Is GIFT City a Better Route for NRIs
Overall, GIFT City may turn out to be a better option for NRIs while routing their investments into India. “Under the conventional route, NRIs generally invest through Indian mutual funds using NRE or NRO bank accounts, with onboarding routed through domestic intermediaries, KYC formalities, FEMA compliance checks and tax withholding obligations embedded into the process.
In contrast, structures operating from GIFT City under the IFSC framework are designed to permit investments in foreign currency directly from overseas bank accounts, thereby reducing currency conversion layers, easing repatriation concerns and aligning the investment ecosystem more closely with international financial centres,” adds Chandwani.
A non-resident external (NRE) account allows NRIs to deposit overseas earnings in Indian rupees, while an NRO account is a rupee-denominated bank account that can be used to deposit income generated in India, including rent, dividends, pensions, gifts, and proceeds from the sale of real estate.
Disclaimer: This article is intended for general awareness only and should not be construed as investment, financial, or tax advice. The views and opinions expressed by the experts quoted herein, if any, are their own and do not necessarily reflect the views of the publication. Financial Express is not responsible for any decisions made based on this information. NRIs are strongly advised to seek independent legal, tax, and financial advice from qualified professionals familiar with both Indian and international investment regulations before making any decisions.