PFIC Exposure Checker: Complete Guide
Everything you need to know, with real numbers and specific rules cited.
A Passive Foreign Investment Company (PFIC) is an IRS classification under IRC Sections 1291-1298 for foreign corporations where either 75% or more of gross income is passive (dividends, interest, rents, royalties) or 50% or more of assets produce passive income. Every Indian mutual fund, whether equity, debt, ELSS, liquid, or hybrid, meets this definition. This means if you are a US tax resident (green card holder or substantial presence) holding Indian mutual funds, the IRS treats them as PFICs, not as regular mutual funds. The tax consequences are severe.
Key Point
Every Indian mutual fund is a PFIC. No exceptions. Equity funds, debt funds, ELSS, liquid funds, index funds, all of them.
Example
You hold Rs 20,00,000 (~$24,000) in an SBI Bluechip Fund. Despite being a large-cap equity fund that India taxes at 10% LTCG, the IRS classifies it as a PFIC and can tax gains at your ordinary income rate (up to 37%) plus an interest charge.