6 Tax Questions NRIs Should Clarify Before Investing in USD

There's a question NRIs in our WhatsApp community rarely ask out loud but always think: "Will I accidentally end up paying more tax than the returns I earn?"

It's a real fear. And it's justified.

We've seen NRIs invest in GIFT City FDs or mutual funds based on a headline that says "tax-free returns." Six months later, they discover their residence country taxes the same income at 40%.

At Belong, we believe every NRI should answer these six tax questions before putting a single dollar into any USD product.

1. Is This Investment Tax-Free in India, My Residence Country, or Both?

This is the question that prevents the most expensive surprises. "Tax-free" in Indian financial marketing almost always means tax-free under Indian law. It says nothing about your residence country.

GIFT City Fixed deposits and inbound mutual funds are are tax free in India for all NRIs. They might have to pay taxes based on the tax laws of your country of residence.

For the outbound mutual funds investing in global equities, the long term and short term capital gains tax are applicable at the fund level.

2. No TDS Was Deducted. Does That Mean No Tax?

For products like fixed deposits and inbound mutual funds (investing in Indian equities), there are no taxes for NRIs.

For outbound mutual fund there are taxes at the fund level based on the how long the fund house holds the stocks.

3. What Happens to the Tax Treatment if My Residency Changes?

When you become a resident Indian, you are not allowed to hold mutual funds investing in Indian equities (Inbound funds) and GIFT City USD FD.

For the outbound funds, you can continue holding them even after becoming resident Indian.

If you are relocating to another country other than India, the taxation for the Inbound fund and USD FD remains the same. They remain tax free in India but are taxable in the country of residence according to tax laws.

4. How Does DTAA Actually Protect Me, and Where Doesn't It?

DTAA helps ensure that NRIs/Overseas Citizens of India (OCI) don't face excessive international tax burdens due to the same income being taxed in multiple jurisdictions.

As there is no tax deducted at source for GIFT City products there is no need for using the provisions of DTAA.

5. Do I Need to File Indian ITR Even if I Owe Zero Tax?

For the income (interest or capital gains) earned in GIFT City there is no need to file an ITR as the returns from USD FD and capital gains from inbound mutual funds are tax free in India.

The outbound funds are taxed at the fund level. So, there is no need to file an ITR for them.

6. What Are the Tax Implications When I Repatriate?

Your maturity amount and capital gains from MF remains tax free if you are repatriating to your NRE account in India.

Most of the countries require you to declare your foreign assets and income. You already pay taxes on your foreign income. So, there is no need to pay additional taxes when you repatriate GIFT City funds to your resident country.

Your Next Step

Tax clarity before investing is cheaper than tax cleanup after. Thousands of NRIs in our WhatsApp community share real experiences with cross-border tax situations every week.

The Belong app helps you compare FD rates, explore GIFT City mutual funds, and make informed decisions. Know the tax. Then invest with confidence.

Disclaimer: For informational purposes only. Not financial, tax or legal advice. Consult qualified advisors before investing or filing. Rates and regulations subject to change.