Your Indian mutual funds are frozen because you moved to the US — the India-side fix

FATCA — the US Foreign Account Tax Compliance Act — requires financial institutions worldwide to identify US persons among their account holders and report those accounts. In India, every bank, fund house and brokerage collects a FATCA self-declaration during KYC, asking about US citizenship, US tax residency, a US address or phone number, birthplace and green-card status. Answer yes to any of these and your account is tagged as a US person's.

For an Indian AMC, a US-person investor brings ongoing reporting work — collecting tax identification numbers, reporting account details, maintaining compliance systems — often for a small slice of their book. So many AMCs simply restrict or stop accepting US and Canada residents, and only a handful continue, usually with extra paperwork. Folios opened while you were in India can be flagged and frozen once your status changes.

The result is familiar: you can't add to the folio, your KYC shows as incomplete or restricted, and redemptions stall. Nothing is lost — but the money is stuck behind a paperwork wall until the India-side status is fixed.

There's a second reason these holdings feel like a trap, and it sits on the US side. To the IRS, an Indian mutual fund is a "passive foreign investment company" — a PFIC. Holding one as a US person triggers some of the most punishing reporting in the US tax code (Form 8621), and because no Indian fund offers the election that would soften it, the default PFIC treatment is harsh.

That's your US CPA's domain, not ours, and we don't prepare Form 8621 or advise on US elections. But it shapes the India-side plan for one practical reason: it usually pushes US persons to exit Indian mutual funds rather than hold them indefinitely. And an exit is an India-side taxable event — a redemption that has to be computed, taxed and remitted correctly.

So the two problems compound. FATCA makes the folio hard to operate; PFIC makes it costly to keep. For most people the clean resolution is an orderly redemption done right on the India side, with the US reporting handled by their CPA.

The India-side fix has four moving parts.

First, the FATCA self-certification and KYC. Your records must reflect your true status as a US or Canada resident and carry the correct FATCA declaration, so the folio is compliant rather than frozen on a mismatch. With an AMC that accepts your status, the folio can then transact; with one that doesn't, the realistic route is to redeem and exit.

Second, the redemption tax. When you redeem, the AMC deducts TDS under Section 195 before paying you. The rate depends on the fund and holding period — long-term equity-fund gains at 12.5% above the annual exemption, short-term equity at 20%, debt-fund gains at slab rates. The AMC often deducts conservatively, so the TDS can exceed your real liability.

Third, the computation and refund. We work the actual capital gain on each folio and file your Indian return, so any excess TDS over your true liability comes back as a refund rather than staying stuck with the department.

Fourth, repatriation. To move the proceeds out of India to your overseas account, the transfer goes through Form 15CA and, where required, a Form 15CB certificate (Rule 37BB) — the proper channel that records the remittance cleanly.

These four steps free the money the right way. What you then do with the redemption on your US return is your CPA's work.

Sunita built up several mutual-fund folios while working in Mumbai. She moved to California, became a US resident, and found her folios restricted — she couldn't transact, and her bank flagged a FATCA mismatch. Her US CPA also warned her the funds were PFICs and a headache to keep reporting.

India side (our work): we update her FATCA self-certification and KYC to reflect her US residency. Because most of her AMCs no longer support US persons, the sensible path is to exit, so we plan an orderly redemption. On redemption each AMC deducts TDS under Section 195 — long-term equity at 12.5%, anything short-term at 20%. We compute the actual gain folio by folio and file her Indian return, recovering the excess TDS as a refund. We then route the proceeds out through the 15CA/15CB channel to her US account.

US side (her CPA's work, not ours): her CPA handles how the redemption and the PFIC holdings are reported on her US return. We provide the India figures — the gain per folio, the TDS deducted, the dates — as clean inputs.

The money that felt trapped is now out, taxed correctly in India, with the excess TDS refunded — and the India-side numbers her CPA needed were ready.