IRS Form 8621: A Complete Guide For NRIs To Invest In Foreign Mutual Funds

As a US-based NRI, if you hold any Indian mutual fund, ULIPs, ELSS, or any other Indian investment that qualifies as a PFIC, you are almost certainly required to file Form 8621 with your US tax return every year. The Form 8621 is the IRS information return for the shareholders of a Passive Foreign Investment Company.

In this blog, we will walk you through each part of the Form 8621 for NRIs, which tax method applies to your holdings, and the filing mistakes that keep your tax return open to an IRS audit indefinitely.

What Is IRS Form 8621?

IRS Form 8621 is officially titled "Information Return By a Shareholder Of A Passive Foreign Investment Company or Qualified Electing Fund". This is a tax form that US taxpayers must file for each Passive Foreign Investment Company (PFIC) they own.

This form is filed as an attachment to your annual Form 1040 (or 1040-NR for non-resident aliens). There is no separate submission; it goes with your tax return.

Form 8621 serves two major purposes: firstly, it informs the Internal Revenue Service that you must hold a PFIC, and secondly, it reports how the PFIC income will be taxed, which depends on which tax method you have elected or defaulted into.

The IRS form must be filed for each PFIC you hold, so if you own five different Indian mutual fund schemes, you need to file five separate Form 8621s.

Who Needs To File IRS Form 8621?

IRS Form 8621 filing must be done by you if you are a US person, meaning a U.S. citizen, green card holder, or someone who has met the substantial presence test.

• Directly own PFIC shares in a foreign brokerage or investment account.
• Indirectly own the shares through a pass-through entity such as a partnership, S-Corp, trust, or estate.
• Receive an excess distribution from a PFIC.
• Sell or dispose of your PFIC shares during the tax year.
• Make a QEF or the Mark-to-Market election.
• Hold a PFIC even if there was no transaction during the year.

This last point surprises a lot of people, meaning you may be required to file Form 8621 even if you made no sale, received no distribution, and did nothing with the investment during the year. Merely holding a PFIC can directly trigger a filing requirement in certain situations.

Why Do Indian Mutual Funds Require You to File Form 8621?

Every Indian mutual fund scheme, whether debt, hybrid, equity, or index, is almost certainly classified as a PFIC under US tax law.

Indian mutual funds are structured as trusts under SEBI regulations, but the IRS treats them as foreign corporations for tax purposes. Since their primary activity is investing in securities and generating passive income dividends, interest, and capital gains, they satisfy both the PFIC income test (75% + passive income) and the asset test (50% + passive assets) easily.

This straightaway means

• Your SBI Blue Chip Fund - PFIC
• Your HDFC Short Term Debt Fund - PFIC
• Your Mirae Asset Tax Saver Fund - PFIC
• Your Nippon India Liquid Fund - PFIC

Each one of these is a separate PFIC requiring its own Form 8621.

Form 8621 For Foreign Mutual Fund & PFIC Investment

The Form 8621 must mandatorily be filed for every investment that qualifies as a PFIC, including your Indian mutual funds, Indian ETFs, and ULIPs. Each qualifying fund requires a separate Form 8621 filing, regardless of whether any transactions occurred during the year. Just holding a PFIC is more than enough to trigger the reporting obligations in most cases.

And this is what catches many NRIs off guard: they assume that because they did not receive any distributions from their Indian mutual fund during the year, there is no need to report. And this assumption is incorrect. The IRS will require you to make an annual disclosure of your PFIC holdings, and each of the Indian mutual fund schemes you hold is treated as a separate PFIC, requiring its own form.

What Is A Passive Foreign Investment Company (PFIC)?

A PFIC is any foreign corporation that meets either of these tests.

The Income Test: 75% or more of gross income is passive income, including interest, dividends, rents, royalties, and capital gains.

Asset Test: 50% or more of the assets are held to produce passive income.

A foreign fund will only need to satisfy one test to qualify as a PFIC; investment funds, by their nature, must satisfy both tests.

The Common PFIC Investments Relevant To NRIs

Here is a practical implication: If you want Indian equity exposure without the PFIC complexity, investing through a US-listed India ETF (such as those available on US exchanges) is more tax-efficient for US residents than holding an Indian mutual fund directly.

How PFIC Investments Are Taxed

Understanding the taxation method of a PFIC is essential for any investor in foreign mutual funds that qualify as PFICs.

So, there are three ways a PFIC can be taxed: Excess Distribution, Mark-to-Market (MTM), and Qualified Electing Fund (QEF). Let us understand it:

Section 1291 Fund (Excess Distribution Method)

The default taxation method is excess distribution as a $ 1,291 Fund. If you choose this route, you will be taxed on the excess distributions and will then realize a gain on the sale or disposition of stock holdings.

Mark-to-Market (MTM)

If you elect MTM, your PFIC's annual increases in value are taxed as ordinary gains. At the end of the tax year, the marketable securities you hold are then treated as if you sold or repurchased them at their fair market value on that last business day. The value on the last business day of the year will determine the fund's ordinary gains and losses. Something to note is that if you want to go down this route, although the MTM election can generally be made in a later eligible year, making it as early as possible usually produces better tax outcomes.

For NRIs holding Indian mutual funds who cannot access the QEF, MTM is the most practical and manageable approach, though it still results in less favorable tax treatment than standard US investment fund taxation.

Also ensure that the MTM election is typically irrevocable, meaning once you have made it, you cannot easily switch the methods. Hence, make this decision under professional guidance.

Insight Into Qualified Electing Fund (QEF)

With a QEF election, your PFIC will be taxed based on your PFIC's pro-rata share of undistributed earnings for both the ordinary income as well as the long-term capital gains. However, this method is quite a tax to employ because of the complex documentation requirements associated with the making of the election.

Now, with NRIs holding Indian funds, the QEF election requires the fund to provide a "PFIC Annual Information Statement" with specific financial data. Almost no Indian mutual fund houses provide this. Without it, you cannot make a valid QEF election.

QEF is effectively unviable for NRIs holding standard Indian mutual fund schemes.

The following table demonstrates all three methods with their tax rates, annual filing, India fund provides required data, best for, and more.

Structure Of Form 8621

Form 8621 is a multipart form, and as a taxpayer, understanding its specifics will help you complete and file it correctly. The form is divided into six parts, each serving a different purpose. Which part of the form you complete depends on your specific situation and the tax election you and your CA/CPA choose.

The following table demonstrates the structure of Form 8621

Download IRS Form 8621

As the form was revised in December 2025, a new requirement in Part V was added: filers must now enter a three-letter currency code above Line 15a to identify the currency in which distributions were received. This applies to expats who have received investment income in foreign currencies.

Why Does This Form 8621 Structure Make DIY Filing Risky

So, as an individual without extensive, detailed knowledge of taxation, filing Form 8621 is risky. It is so because the challenge is not simply filing the taxes; instead, it is knowing which parts of the form apply to your specific situation, which election produces the lower tax bill over time, and how to align the form with the rest of your expected tax return.

Now, a wrong election or failing to make one at all will trap you in punitive default tax methods for years. And because each PFIC requires its own form, errors multiply across your portfolio.

How To File Form 8621 With Form 1040

Filing Form 8621 is straightforward; the complexity lies in the calculations, not in the filing mechanics.

Step 1: Identify Every PFIC You Hold

List every Indian mutual fund scheme, foreign ETF, or other foreign investment fund you hold as of the tax year-end. List each of the PFICs you hold as of the tax year-end. Each one requires a separate Form 8621.

Step 2: Determine Your Tax Method For Each PFIC

Have you made any prior elections? If not, you are in Section 1291 by default. If you want to make an MTM or QEF election, it must generally be made on a timely filed return for the first year the fund qualifies as a PFIC while you are a US person.

Step 3: Gather valuation information

For MTM, you need the fair market value of your fund holdings at the start and end of the tax year. You must use the year-end Net Asset Value per unit, multiply it by your unit count, and convert to USD using the Treasury exchange rate for December 31.

Step 4: Complete Each Form 8621

You must fill in the PFIC identification information in Part 1, mark your election in Part 2, and complete the relevant Part (3,4,5) depending on your tax method.

Step 5: Attach to Form 1040

Include all the completed Form 8621 as attachments to your Form 1040; file all of these by the standard deadline, April 15 or October 15, with an extension. If you are abroad, the automatic June 15 extension applies to filing (not to payment).

What Are The Common Mistakes When Filing Form 8621 For Indian Mutual Funds

The following are some common mistakes to avoid when filing Form 8621 for Indian mutual funds.

• Filing the form for all the funds: Each fund has a separate PFIC and gets its own Form 8621. A single form covering multiple Indian mutual funds is incorrect.
• Misapplying the de minimis exception: All three considerations must be met. Exchange rates fluctuate, and fund growth can push you over the $25,000 threshold in a year when you did not in previous years. You shall apply for the three-part check for every tax year.
• Skipping the Currency Code: The December 2025 revision added the three-letter ISO currency code requirement in Part V. Write "INR" in the currency field whenever you enter an Indian rupee amount. If you miss this, it can trigger a correspondence notice from the IRS.
• Assuming the India-US tax treaty protects you from PFIC reporting obligations: The DTAA does not really override US PFIC anti-deferral rules. PFIC tax reporting applies regardless of treaty positions.
• Missing Prior Years: Under IRC Section 6501(c)(8), failing to file Form 8621 keeps the statute of limitations open on the PFIC return for the years in which you held the PFIC. The timeline does not start until three years after you have filed Form 8621, so an unfiled form leaves those years exposed indefinitely.
  The IRS can assess additional tax and penalties on those with open years at any time.
• Not making an election in the first eligible year: Once you default into Section 1291 treatment, getting out of it generally requires a deemed sale selection, which in itself triggers a taxable event. Making the MTM election in your first eligible year as a U.S. tax resident is always and always better than waiting.
• Using the wrong exchange rate: The PFIC values must use the Treasury's published exchange rate for the appropriate dates, not the bank rates you happened to remember. For the December 31 year-end, use the Treasury rate for December 31.
• Assuming the small holding exception applies automatically: The exception for the holding under $25,000 is considered and does not apply in all situations, particularly if you have received the interest or made the sales during the year.

What Will Happen If You Do Not File Form 8621

The consequences of missing Form 8621 are serious and compound over time.

• Open the statute of limitations: If Form 8621 was required and you haven't filed it on time, the statute of limitations on your entire Form 1040 for that relevant tax year remains open indefinitely. The IRS can audit any part of the return. This is applicable until the form is filed.
• Underpayment penalties and interest: Taxes owed under the PFIC rules but not paid will incur the standard IRS underpayment penalties, plus interest from the original due date.
• 40% accuracy-related penalty: Underpayments attributable to undisclosed foreign financial assets can trigger a 40% penalty under Section 6662(j), which is double the standard 20% accuracy penalty.
• Section 1291 default applies to an eventual sale: If you haven't filed Form 8621 and eventually sell out of the fund, the IRS will apply Section 1291 default treatment with the historical tax rates and interest charges going back to the year you first held the funds as a US person.

If you have unfiled the Form 8621s from prior years, the IRS streamlined filing compliance procedures might be available to bring you into compliance with reduced penalties, given that the non-compliance was unintentional. It is highly advisable to consult a US CPA before attempting to ensure compliance procedures, as eligibility requires careful assessment.

The Bottom Line

As an NRI holding Indian mutual funds, for you, one of the most overlooked and most consequential IRS filing requirements has to be Form 8621. The perfect amalgamation of punitive default tax treatment under Section 1219, an open status of limitations for missing filing, and the compounding effect of interest charges makes ignoring this form quite costly.

The overall practical guidance is clear: if you are a US tax resident holding Indian mutual funds, identify each and every scheme you hold, make the MTM election for each in your first eligible year, file a separate Form 8621 for each fund annually, and work with a US CPA with specific experience in PFIC compliance.

If you are an NRI who has never filed Form 8621 and is reading this, it's not too late to fix it. The sooner you act, the better your options. The streamlined compliance path does exist specifically for situations like this and for catching up.

For multiple PFICs, an MTM election or prior-year corrections through the Streamlined Procedures, a CPA with cross-border experience will produce more accurate results than DIY software. In case you are paper-filing, please attach Form 8621 to the back of your 1040 package and send it to the same IRS address as your return. 

As an NRI, if you are seeking any professional assistance with Form 8621 filing, Savetaxs is the name to trust. Our experts help you throughout the process from PFIC identification to data processing, calculations, election advice, reconciliations, and more. We help you with all of this and everything else you ask for. 

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