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General information only. Not investment, tax or legal advice. Naming a fund category is not a recommendation to buy, hold or sell anything. Prem Tax and Accounting Corp is a CPA firm, not a law firm. Rules differ by country and change often: confirm with the official source or a qualified adviser before you act. Read the full notice. Book a 10-minute call.
Mutual Funds in India

PFIC elections and other ways to hold India exposure

The PFIC rules offer three elections, and each has a catch for Indian funds. We explain them, list other ways people hold India exposure, and recommend nothing.

Prepared by Prem Tax and Accounting Corp. Last checked against official sources on November 5, 2026.

After PFIC and Form 8621, the question is whether an election changes the tax. Three exist: QEF (qualified electing fund), mark-to-market and purging. Our Fork-in-the-Road Worksheet lists what to settle. Each choice has tax consequences to discuss with a qualified adviser, and we recommend nothing.

The short version
  • QEF: tax each year on your share of the fund's earnings, with a yearly fund statement that no Indian fund house is known to issue.
  • Mark-to-market: the year-end gain is ordinary income. It covers only "marketable stock", and Indian funds' eligibility is not settled.
  • Purging: a deemed sale that restarts the clock, tied to QEF.

Slide show: Three PFIC elections in four slides

  1. QEF

    Report your share of the fund's income and gains each year, paid out or not.

  2. Mark-to-market

    Each year end, value above basis is ordinary income. A fall is deductible only up to earlier gains.

  3. Purging

    A deemed sale on the first QEF day, taxed as an excess distribution. The clock restarts.

  4. Deadlines

    Elections go on Form 8621. Late relief is narrow.

The elections side by side

ElectionWhat it needsOpen point for Indian funds
QEFThe fund's signed yearly statementNo Indian fund house is known to issue one. Not a legal bar
Mark-to-marketTrading on a qualified exchange 15 days each quarter, or a fund priced at NAV (net asset value) passing eight testsWhether schemes pass, or NSE and BSE (India's stock exchanges) qualify, is not settled
PurgingA QEF election firstClosed in practice without QEF (our reading)

QEF and mark-to-market elections are due with the return, extensions included: April 15 or October 15, 2026 (tax year 2025); April 15 or October 15, 2027 (tax year 2026). The current Form 8621 is the December 2025 revision.

Other ways people hold India exposure

HoldingPFIC rules?FBAR and Form 8938 (above the limits)
U.S.-registered fund or ETF investing in IndiaNo: a U.S. corporationNeither, if held directly
Shares of Indian companiesOnly if the company meets the PFIC testsThe demat (electronic share) account is reported
Indian bonds, NRE, NRO or FCNR depositsDebt, not stock (our reading)The account is reported; the U.S. taxes the interest

New residents and citizens in India

  • The rules reach any U.S. person, including green card holders and H-1B workers who pass the substantial presence test.
  • Arriving gives no new basis. Proposed 1992 rules would treat pre-residency days as ordinary income without interest; they were never finalized.
  • Citizens living in India are U.S. persons too. A fund house may still refuse them: see fund houses that restrict U.S. residents.
Not settled Mark-to-market for Indian schemes, NSE and BSE as qualified exchanges (the IRS has no list), and the pre-arrival days are all open.

Our checklist

The Fork-in-the-Road Worksheet:

  • Record each fund's type: open-ended scheme, ETF or other.
  • Ask the fund house in writing for a PFIC annual statement, and keep the reply.
  • Record the date you first held the units and the date you became a U.S. person.
  • Note each year's election deadline.

Common questions

Can a QEF election be made late?

Only under a narrow rule: a protective statement filed in time, or an IRS private letter ruling. A late mark-to-market election needs special relief.

Is switching schemes a sale?

Yes. A switch is a redemption plus a new purchase, so the gain falls under the PFIC rules. Moving from a regular to a direct plan is not settled.

Do heirs get a stepped-up basis?

Generally no for PFIC units, unless the person who died was a nonresident alien throughout the holding period. See [inheritance and changing residence](/indian-mutual-funds/india-rules/inheritance-and-changing-residence/) and our [Indian CPA page](/indian-cpa/).

Official sources

Keep reading

Questions about how your Indian funds are reported on a U.S. return? Keshav Agrawal is a U.S. CPA and a Chartered Accountant (CA) from India. We prepare the U.S. side (for example Form 8621, FBAR and Form 8938) and can work alongside your adviser in India, Canada or Europe. We do not sell, rate or recommend any investment. Book a 10-minute call or send us a message.

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