Best Ways To Invest In US Stocks From India

Indian residents can legally invest in US stocks under the RBI's Liberalised Remittance Scheme (LRS). From global brokers and GIFT City (NSE IFSC) to international mutual funds and ETFs, this guide covers how to invest in US stocks from India, the associated costs, tax implications, and key benefits. 

Key Highlights:

• Indian investors can buy US stocks directly through GIFT City (NSE IFSC), or indirectly via ETFs under the RBI's LRS.
• 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.

How to Invest in US Stocks from India?

Indian residents can easily invest in US stocks from India under the Reserve Bank of India's (RBI) Liberalised Remittance Scheme (LRS). This scheme allows to remit up to $250,000 in a financial year for overseas investments. You can invest either by Direct Investment option or Indirect Investment option.

Direct Investment Option

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 Option 

If you prefer not to invest directly in US stocks, you can still gain exposure to international markets through the following 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 to Buy US Stocks on NSE via Gift City?  

Investing in US stocks through GIFT City is simple. Here's how you can get started:

• Step 1: Open a GIFT City Account: Register with an IFSCA-approved broker offering access to the NSE International Exchange (NSE IX).
• Step 2: Fund Your Account: Transfer funds under the RBI's Liberalised Remittance Scheme (LRS).
• Step 3: Choose a US Stock: Select from the available US-listed stocks or fractional shares.
• Step 4: Place Your Order: Buy the stock through your broker's trading platform.
• Step 5: Track Your Investment: Monitor your portfolio and sell your holdings whenever you choose.

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.

How to Invest in NSE IFSC:

• Step 1: Open an account with an IFSCA-registered broker.
• Step 2: Complete the KYC verification process such as PAN, Aadhaar, and bank details.
• Step 3: Transfer funds in US dollars under the RBI's Liberalised Remittance Scheme (LRS).
• Step 4: Select the international securities you want to invest in such as US stock depository receipts, ETFs, or other global products.
• Step 5: Buy or sell securities through your broker's trading platform and track your portfolio online.

Cost of Investing in US Stocks 

Before investing in US stocks, it's important to understand the costs involved, as they can affect your overall returns.

• 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.

Investing in US stocks from India involves several costs beyond the stock price, so understanding these charges can help you estimate your total investment and maximise your 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.

Taxation on 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:

Before investing in US stocks, it's important to understand the key tax rules that apply to capital gains, dividends, and foreign income reporting.

• STCG: If you sell US shares within 24 months, the capital gains are taxed according to your applicable income tax slab in India.
• LTCG: If you sell US shares after 24 months, the gains are taxed at a flat 12.5% in India (without indexation).
• Dividend Tax: Dividends from US stocks are subject to a 25% withholding tax in the US, but you can claim a foreign tax credit in India under the India–US DTAA.
• Reporting: You must report all foreign income, including capital gains and dividends, in your Indian Income Tax Return (ITR), even if tax has already been paid in the US.

Key Benefits

Investing offers several benefits that can help you achieve your long-term financial goals. 

• 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.

Key Things to Consider Before Investing in US Stocks

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, understanding remittance rules, taxation, currency impact, helps to make better decisions.