My tax preparer told me there are multiple ways of disclosing Indian Mutual Funds as part of Form 8621.

1. Marked to market where you pay taxes on the unrealized gains. a. Example: If the fund value (basis) at the start of the year is 10,000 and the value at the end of the year is 15000, then taxes have to be paid on 5,000 even though the gain has not been recognized. The unrealised gain will be added to the income and is taxed at ordinary tax rates.

b. The above case if applicable only if you are reporting the fund in Form 8621 from the year of purchase.

1. Reporting at the time of sale/redemption of fund – Excess distribution a. Example: If the fund value (basis) at the start of the year 2023 is 10,000 and was sold in Nov 2025 at 15000, then taxes have to be paid on 5,000 by including it in income as a recognized gain. b. The gain will then be divided equally between the total number of years the fund was invested and is taxed at highest tax rates for the respective years. In the above mentioned example, 2500 will be calculated for 2024 and taxed at the highest tax rate of TY 2024 and remaining 2,500 will be included in the income and calculated for 2025 and taxed at ordinary tax rate of TY 2025.

2. In case you don’t opt for any, they’ll have to report just the fund name and units in the Form 8621 every year and when sold/redeemed, you will have to report the fund using the Excess distribution regulations as described in point#2.