Form 8621 for Indian mutual funds (PFIC): what to file, what it costs (2026)

What is a PFIC and why are Indian mutual funds in scope?

A Passive Foreign Investment Company is a foreign corporation that meets either of two tests set in section 1297 and summarised in the IRS instructions: "75% or more of the corporation's gross income for its tax year is passive income" (the income test), or "At least 50% of the average percentage of assets ... held by the foreign corporation during the tax year are assets that produce passive income or that are held for the production of passive income" (the asset test) (Instructions for Form 8621).

An Indian mutual fund scheme — ICICI Prudential Bluechip Fund, HDFC Flexi Cap, SBI Magnum Equity, Parag Parikh Flexi Cap — is a trust that holds Indian equities, bonds or money-market instruments to earn dividends, interest and capital gains. Those are the textbook definition of passive assets. Every Indian AMC scheme meets the asset test by construction, which is why practitioners treat Indian mutual funds as PFICs by default.

This applies to units held directly in your name with the AMC, through an Indian distributor or online platform (Zerodha Coin, Groww, Kuvera, Paytm Money), through NRE/NRO SIPs, and to units held inside an Indian demat account.

Who has to file Form 8621 for an Indian mutual fund?

The IRS lists five triggers in the instructions. "Generally, a U.S. person that is a direct or indirect shareholder of a PFIC must file Form 8621 for each tax year under the following five circumstances if the U.S. person": receives a direct or indirect distribution, recognises gain on a disposition, is reporting information with respect to a QEF or section 1296 mark-to-market election, is making a section 1298(f) annual filing, or qualifies for a reportable transaction obligation (Instructions for Form 8621).

For a resident alien in the US with Indian mutual fund SIPs, the common triggers are: a scheme paid a dividend during the year, the scheme was redeemed or switched, or Part I annual filing is required because the $25,000 threshold is exceeded. If you have, say, five ICICI Prudential schemes and two HDFC schemes, you have seven PFICs and up to seven Form 8621s per year.

A separate Form 8621 is required per fund scheme: "A separate Form 8621 must be filed for each PFIC in which stock is held directly or indirectly" (IRS). Multiple folios in the same scheme consolidate; different schemes do not.

The $25,000 / $50,000 filing exception

The one exception that quietly saves early-career H1B holders is in Reg. 1.1298-1(c)(2), summarised in the Form 8621 instructions: the Part I annual information filing is not required if "The stock of the foreign corporation that is owned by the U.S. person (including stock owned indirectly) has a value of $25,000 or less ($50,000 or less in the case of a joint return) on the last day of the U.S. person's tax year and on any day during the tax year on which the U.S. person disposes of stock of the foreign corporation" (Instructions for Form 8621).

Three things to know about this exception:

• It applies to aggregate PFIC stock, not per-scheme. ₹10 lakh in one ICICI Prudential fund + ₹5 lakh in an HDFC fund + ₹8 lakh in a Parag Parikh fund equals ~$27,000 — over the $25,000 floor; Part I is required.
• It is only an exception to Part I (the annual information filing). If a scheme paid a distribution or you redeemed units during the year, you still file Form 8621 for that scheme to report the distribution or disposition.
• It does not change the fact that the fund is a PFIC. If you later elect QEF or mark-to-market, the elections and the tax rules still apply.

A second, narrower exception removes Part I where the indirect PFIC stock value is $5,000 or less — relevant mostly for people with Indian mutual funds held inside another entity.

The three PFIC tax regimes

1. Default: section 1291 excess distribution rules

If you do nothing — no QEF election, no mark-to-market election — the scheme is a "section 1291 fund". Distributions and gain on disposition are taxed under a punitive excess-distribution regime. The IRS defines excess distributions as the portion of distributions that exceed 125% of the average distributions in the prior three years, and treats the entire gain on disposition as an excess distribution: "The entire amount of gain from the disposition of a section 1291 fund is treated as an excess distribution" (Instructions for Form 8621).

The excess distribution is "determined on a per share basis and is allocated to each day in the shareholder's holding period of the stock" (IRS). The amount allocated to prior years is taxed at the highest ordinary income rate for each of those years, plus interest from the original due date, which produces the famous high effective rates on long-held Indian funds.

2. Mark-to-market election (section 1296)

A US shareholder of a PFIC can elect under section 1296 to mark the stock to market if it is "marketable stock" — stock "that is regularly traded (as defined in Regulations section 1.1296-2(b))" on a qualified exchange (Instructions for Form 8621). Indian mutual fund units are usually not marketable stock for section 1296 because open-ended mutual fund units are redeemable at NAV rather than traded on an exchange. ETFs listed on NSE/BSE and closed-ended funds that trade regularly may qualify; most SIPs you set up through an AMC do not.

Where the election is available, "the shareholder either: Includes in income each year an amount equal to the excess, if any, of the fair market value of the PFIC stock as of the close of the tax year over the shareholder's adjusted basis in such stock; or" takes a limited deduction for losses to the extent of prior mark-to-market gains (IRS). Ordinary income treatment, every year, on the year-end mark.

3. QEF election (section 1295)

A QEF election under section 1295 flows the fund's ordinary earnings and net capital gains through to the US shareholder each year: "A shareholder of a QEF must annually include in gross income, as ordinary income, its pro rata share of the ordinary earnings of the QEF and as long-term capital gain its pro rata share of the net capital gain of the QEF" (Instructions for Form 8621).

QEF is usually the most favourable outcome, but it only works if the PFIC issues a "PFIC Annual Information Statement" (defined in the Form 8621 instructions, Election A) with the required accounting breakdown. Indian AMCs do not routinely produce PFIC Annual Information Statements in the US-tax format. In practice QEF is rare for Indian mutual funds unless the AMC specifically provides the statement to US investors.

A worked example: ICICI Prudential and HDFC SIPs for an H1B in Seattle

Rohan moved to Seattle on H1B in 2023 and passed the Substantial Presence Test in 2024. He kept three SIPs running in India:

• ICICI Prudential Bluechip Fund (₹8 lakh year-end balance ≈ $9,300).
• HDFC Flexi Cap Fund (₹5 lakh ≈ $5,800).
• Parag Parikh Flexi Cap Fund (₹9 lakh ≈ $10,500).

Total PFIC stock ≈ $25,600 at year-end — just above the $25,000 Part I exception. He files three separate Forms 8621 (one per scheme). None of the schemes provides a PFIC Annual Information Statement; QEF is off the table. Open-ended Indian mutual fund units are not "marketable stock" for section 1296; mark-to-market is also off. Each scheme falls into the default section 1291 regime. In a year with no redemption and no distribution, the Part I annual filing still goes in once over the $25,000 floor. In the year he eventually redeems the Bluechip Fund, the entire gain is treated as an excess distribution, allocated across his holding period in the fund, and taxed at the top ordinary rate for each prior year with interest from the original due date — see the "section 1291 fund" rules in the Instructions for Form 8621.

Rohan also files Form 8938 for Indian assets (the mutual fund folios are foreign financial accounts for 8938 purposes) and his FBAR. See Form 8938 for Indian assets and file FBAR for Indian bank accounts.

Where to file Form 8621 and when

"Attach Form 8621 to the shareholder's tax return (or, if applicable, partnership or exempt organization return) and file both by the due date, including extensions, of the return at the Internal Revenue Service Center where the tax return is required to be filed" (Instructions for Form 8621). In practice this means Form 8621 is attached to Form 1040 and filed with it — April 15, auto-extended to October 15 if you extend the 1040.

Each Form 8621 is a separate attachment. If you have five PFICs, you attach five Forms 8621 to one Form 1040.

Why TurboTax doesn't do Form 8621

TurboTax Online and TurboTax Desktop do not include Form 8621 in their supported forms list. There is no in-product workflow for electing QEF or mark-to-market, no PFIC worksheets, and no 1291 excess-distribution calculator. The common DIY workarounds — filing without 8621, bolting on a PDF attachment, or leaving the PFIC off entirely — create accuracy and reporting-penalty exposure.

Section 1298(f) requires the annual filing for shareholders in Part I; a shareholder who does nothing is still a PFIC shareholder with the section 1291 default and a filing obligation when the $25,000 floor is exceeded. If you missed Form 8621 in prior years, remediation is typically through Form 1040-X or the Streamlined Filing Compliance Procedures, depending on willfulness; see streamlined filing for NRIs.

How Lesser handles Form 8621 for Indian clients

Our fixed workflow for a new NRI client with Indian mutual funds:

1. Pull a scheme-level statement for every live fund folio (not just a consolidated capital gains statement — a per-scheme year-end balance plus distributions and redemptions).
2. Classify every scheme as a PFIC (true for essentially all Indian AMC schemes).
3. Test whether aggregate PFIC stock is at or below $25,000 at year-end and whether any disposition occurred, to see if the Part I exception applies.
4. Default each scheme to the section 1291 regime, since QEF and mark-to-market are rarely available for open-ended Indian mutual funds.
5. Prepare one Form 8621 per scheme for distributions, dispositions and the annual filing, and reconcile to the capital gains statement.
6. File Form 8938 reporting the same folios as foreign financial accounts.

Form 8621 pricing at Lesser: our flat-fee NRI tax filing (Form 1040 + Form 8938 + FBAR) does not include Form 8621; Form 8621 is priced per PFIC on top. See how Lesser works for NRIs for the current per-PFIC price and the full fixed-fee scope. For the FBAR and 8938 obligations that typically run alongside, see FBAR and Form 8938 for Indian accounts and resident alien vs nonresident alien.