Form 8621

This is the form a person will have to fill if (s)he owns MFs of an Indian MF company. This form gives various ways of declaring notional appreciation.

Option 1: Election to Mark-to-Market PFIC

This is regarded as the most sought after option for Indian MF investments. Navani says, "Broadly speaking, according to this option, you must declare as income the notional gains in the market value of your fund holdings during the year."

- In the year when the MF is bought, gains is the variation between market value of the MF at the end of that year and cost of purchase.

- In the coming years, gains will be calculated by getting the variation between market value at the end of that year and adjusted basis. Adjusted Basis is defined as the market value in the start of a year.

If there is a loss encountered, it can be offset against the notional gain of only the previous year’s overseas PFIC. If this is not done, the loss is included in the adjusted basis of the coming year.