Best Ways To Invest In US Stocks From India

Indian investors can buy US stocks directly through international brokers or indirectly through US-focused mutual funds and ETFs. Investments are made under the RBI’s Liberalised Remittance Scheme (LRS), which allows remittances up to $250,000 per financial year. 

Key Highlights:

• Indians can invest in US stocks directly, through ETFs, or via GIFT City.
• LRS allows overseas investments up to $250,000 per financial year.
• TCS applies only above the prescribed remittance threshold and can be adjusted in the ITR.
• US stock taxation depends on capital gains and dividend income rules.
• Fractional investing allows you to start with small amounts.

How Indians Can Buy US Stocks?

One can invest in the US stock market from India either directly by opening an international brokerage account with an Indian or US broker and using the RBI’s Liberalised Remittance Scheme (LRS) to remit up to $250,000 per year or indirectly through US-focused mutual funds and ETFs.

Direct Investment Options

There are two options when it comes to direct investment methods:

• Global Trading Account with a Domestic Agent: Many Indian brokers partner with US brokers to help you trade in the US stock market. You can open an international trading account with them, but some brokers may have limits on the types of investments or the number of trades you can make.
• Overseas Trading Account with a Foreign Broker: Choosing a broker with a global presence in India is another way to invest in international markets. Before you open an account, be sure to look over the costs, fees, and terms. 

It can be expensive to invest directly in US stocks because of brokerage and currency conversion fees. Before you start, you should review all costs. 

Indirect Investment Options  

• Mutual Funds: International mutual funds allow investing in other countries. Many of them follow global markets. Some focus on Asian or South American countries, but most follow the US market.
• Exchange-Traded Funds: Unlike mutual funds, ETFs (Exchange-Traded Funds) are traded on the stock market throughout the trading day, just like regular stocks. You can buy and sell ETF units using a demat account or any brokerage. Many ETFs also provide access to NASDAQ and other major international indices.

How can I buy US stocks on the NSE via Gift City?

There are three ways to buy U.S. stocks from India via Gift City.

1. Through international mutual funds that invest in global stocks.
2. Directly via a US-registered stockbroker.
3. Using the NSE IFSC (International Financial Services Centre) Exchange.

What is NSE IFSC, and how do I invest?

The NSE IFSC (International Financial Services Centre) is a fully owned subsidiary of the National Stock Exchange (NSE) that operates an international stock exchange in GIFT City. Indian retail investors have been able to trade US stocks here since March 3, 2022.

Trading hours: Align with the New York Stock Exchange (NYSE), 2:30 p.m. to 8:00 p.m. IST.

How to begin trading:

Step 1: Decide how you want to put your money to work. You can choose between direct investments, like US stocks or ETFs, and indirect investments, like international mutual funds or ETFs.

Step 2: Choose a platform you can trust. To ensure your investments are safe and legal, use a platform that is SEBI- or IFSCA-regulated.

Step 3: Finish KYC and W-8BEN. You need to complete KYC and submit the W-8BEN form to comply with US tax requirements.

Step 4: Put money into your account. Use the RBI's LRS program to send money and change your Indian rupees to US dollars so you can start investing.

Step 5: Place your first order. Start small: many platforms let you buy fractional shares for as little as $1.

Step 6: Keep an eye on your taxes. Make sure you know what taxes you owe in India. To stay in compliance, you must report any foreign income and gains on your ITR (Schedule FA, FSI, Form 67).

Cost of Investing in US Stocks 

• Tax Collected at Source (TCS):20% TCS applies to remittances over Rs. 10 lakhs under the RBI's Liberalised Remittance Scheme (LRS) for buying US stocks. You can get a refund of TCS when you file your Income Tax Return (ITR) in India.
• Capital Gains Tax: Short-Term Capital Gains (STCG): Gains from stocks held for less than 24 months are taxed according to your income tax slab in India.
• Long-Term Capital Gains (LTCG): Gains from stocks held for more than 24 months are taxed at 12.5% in India.
• Dividend Tax: US Tax: Dividends from US stocks are subject to a 25% withholding tax in the US.
• DTAA Benefit: Under the India-US Double Taxation Avoidance Agreement (DTAA), you can claim the tax paid in the US as a foreign tax credit to offset your Indian income tax liability.
• Bank Charges: Foreign Exchange Conversion Fee: Up to 2% for converting INR to USD.
• Transfer Fee: Charged for overseas fund transfers.

Before investing in US stocks, it’s important to understand the common costs involved, as charges like taxes, brokerage, and currency conversion can affect your overall returns.

Account Setup Fee: Some banks may charge a one-time fee for setting up an account for international investments.

Brokerage Fees: They vary by broker; they can be a flat fee per trade or a percentage of the traded value. Check your broker’s fee structure before opening the brokerage account.

Foreign Exchange Rate Impact: Changes in the INR-USD exchange rate affect how much you can buy, how much you can withdraw, and how many shares/units you get.

Key Tip: TCS is an advance tax, not an additional charge, and can be fully adjusted when filing your ITR

Tax Rules for US Stock Investments 

When you invest in US stocks from India, your tax depends on how long you hold the shares and the type of income, capital gains or dividends. You can also use the India-US Double Taxation Agreement (DTAA) to avoid paying tax twice.

Key points:

• STCG: If you sell US shares within 24 months, the profits are taxed based on your income level.
• In India, gains after 24 months are taxed at a flat 12.5%.
• In the US, you have to pay 25% tax on dividends, but in India, you can get a credit.
• Reporting: You have to report all of your foreign income, including gains and dividends, on your Indian ITR, even if you already paid taxes on it in the US.

Additional Considerations

Key Reasons to Invest:

• Diversification: You can lower your risk and dependence on the Indian market by investing in a variety of markets around the world.
• Strong Track Record: US markets have grown steadily over time and have been less volatile than other markets, indicating a strong track record.
• Global Opportunities: Gain exposure to leading companies and emerge as strong tech innovators.
• Currency Advantage: Returns may improve if the US dollar strengthens against the Indian rupee.

Investment Approaches

Here are the common investment approaches you can consider:

• Direct investing gives you full control, but you need to know a lot about the market and follow the rules.
• Mutual funds and ETFs are good for hands-off investors seeking better returns, as they offer diversification and professional management.

Key Reminders

Here are a few key reminders to keep in mind:

• Currency Exchange: Keep an eye on the fees and exchange rates because they have a direct impact on your returns.
• Tax Rules: It might be a good idea to get professional help to learn about taxes, DTAA benefits, and how to file your taxes.
• Compliance: Ensure your investment method follows all RBI and international regulations.
• Risk & Planning: Invest in line with your comfort with risk and your long-term financial goals.

Conclusion

Investing in US stocks from India gives access to global companies, diversification, and long-term growth opportunities. Investors can choose direct stock investing, ETFs, mutual funds, or GIFT City routes based on their goals. Before investing, understand remittance rules, taxation, currency impact, and platform costs to make informed decisions.