A US ETF includes Apple, NVIDIA and the S&P 500 inside a wrapper that you can buy for ₹90. Fees begin at 0.02 percent. The tax treatment is better than that of international funds. However a US estate tax trap is rarely mentioned. Below is the picture.
Why Indian Investors Are Looking at US ETFs Now
India represents than five percent of the global stock market value. The United States represents half. The companies that shape life. AI chip makers, cloud providers, search engines. Are almost all listed there. Purchasing a Nasdaq 100 ETF places Apple, Microsoft, NVIDIA, Alphabet and Amazon together in one investment.
The immediate reason is domestic. SEBI limits how much Indian mutual funds may invest overseas. Seven billion dollars for the industry one billion dollars for each fund house. That limit is almost reached. In April and May 2026 Nippon India and Axis stopped subscriptions to several international funds. Kotak limited investments to one lakh rupees per PAN per month. When Indian international funds shut the door purchasing US ETFs directly becomes the way to gain US exposure.
The rupee is another factor. It fell from seventy‑four point five rupees per dollar in January 2022 to eighty‑six point seven rupees today. A sixteen percent drop. US ETFs are priced in dollars. When the rupee weakens your holdings convert back into rupees even if the ETF price has not changed.
What a US ETF Actually Holds
An ETF is an exchange‑traded fund. It trades on an exchange like a stock. Contains an index or a basket of assets inside.
A S&P 500 ETF contains all five hundred companies in that index. A Nasdaq 100 ETF contains the constituents of the Nasdaq 100. A semiconductor ETF contains a range of chip companies.
That creates differences. Your portfolio will not collapse because NVIDIA fell ten percent. Apple and Microsoft remain in it. You do not have to research every company’s earnings because the ETF’s rules manage selection and rebalancing.
The cost numbers matter here. The expense ratios of US broad‑market ETFs typically range from zero point zero two percent to zero point two five percent. The SPDR S&P 500 ETF charges zero point zero nine percent. Indian international mutual funds average one percent to two percent and fund‑of‑fund structures increase the cost.
Run the math. One lakh five hundred thousand rupees invested for fifteen years at twelve percent returns:
US ETF route (average zero point one percent fee): total fee impact about seven thousand five hundred rupees.
Indian international fund route ( one point five percent fee): total fee impact about one lakh thirty‑five thousand rupees.
That one lakh thirty‑four thousand two hundred rupees gap is not a paper number. It is money that stays in the portfolio to compound of being taken away by fees.
How to Buy: Two Routes, Two Experiences
Route one: GIFT City platforms (NSE IX Global Access, Tickertape)
GIFT City is India’s offshore financial centre. Under the IFSCA framework a Global Access Provider allows you to buy US stocks and ETFs directly in rupees without opening an overseas bank account.
The flow: open a GIFT City account KYC, transfer funds from your Indian savings account to the GIFT City dollar account and the platform sends it to a US broker for execution. The entire chain operates under regulation.
On cost Smallcase’s US ETF trading through GIFT City charges twenty basis points (zero point two percent) brokerage plus the bank’s foreign‑exchange markup. There is no STT, CTT or GST.
Route two: Foreign broker platforms (Vested, INDmoney, Upstox)
These apps partner with US brokers so Indian investors can place US stock and ETF orders directly. Vested’s co‑founder noted that an investor can buy one dollar worth of NVIDIA with no minimum.
Fractional investing is the key. A single Berkshire Hathaway Class A share costs than five hundred thousand dollars. Fractional ownership lets you participate in the economic performance for one hundred rupees. The same applies to US ETFs. A four hundred fifty dollar ETF lets you buy a slice for thirty dollars.
Both routes use the LRS channel. An Indian resident can remit up to two hundred fifty thousand dollars per year for investments.
Tax: The Rules Are Clear the Details Bite
US ETFs are taxed like direct US stocks. That removes one layer of confusion.
Capital gains. The holding period threshold is twenty‑four months. Sell within twenty‑four months and the gain is short‑term. Added to your income, taxed at your slab rate. Hold beyond twenty‑four months. Long‑term capital gains are taxed at a flat twelve point five percent, with no indexation benefit.
Note that this rule is not the same as the 12‑month rule for listed equity. Many investors confuse the two sell their shares early thinking they will get long‑term capital gains treatment and instead end up paying tax at the slab rate.
Dividends. The United States withholds 25 % at source if you file a W‑8BEN form; otherwise it withholds 30 %. The remaining 75 % is deposited into your account. When you file your tax return you must report the full dividend amount before the U.S. Deduction and pay tax on that amount at your slab rate. After that you can claim a Foreign Tax Credit on Form 67 to offset the tax you already paid to the United States.
An example. Suppose you receive $20,000 in dividends. The United States withholds $5,000 leaving $15,000. India taxes you on the $20,000. If your slab is 30 % you owe $6,000. Subtract the $5,000 Foreign Tax Credit. You owe only $1,000 in India. The Foreign Tax Credit cannot exceed your tax liability; if the U.S. Rate is higher than India’s the excess credit is lost.
Exchange rate effects. A point that is often overlooked: even if the dollar price stays the same a weaker rupee creates gains. The tax calculation uses the SBI Telegraphic Transfer buying rate, not the rate you actually received from your bank.
TCS. Remittances above ₹10 lakh in a year under the LRS attract 20 % TCS. This is not a cost – it is a tax that appears in Form 26AS and is adjusted or refunded when you file. However it does tie up cash for a period.
The US Estate Tax Trap Nobody Mentions
This is the biggest difference between US ETFs and Indian funds.
If you hold assets, including US‑listed ETFs as a non‑resident and die with holdings above $60,000 the excess may be subject to an 18 % to 40 % U.S. Federal estate tax. The India‑U.S. Tax treaty does not cover estate tax.
$60,000 is a threshold. Any Indian investor building an US‑ETF position will cross it easily. The common fix is to use Irish‑domiciled UCITS ETFs – the U.S. Market exposure but with an Irish domicile and no U.S. Estate tax exposure.
This is a structuring decision, not a stock‑picking one.. It is worth knowing before you lock in large sums.
Three Things Indian Retail Investors Should Take Away
First the ETF advantage is not about fees. US ETFs price in time during market hours accept limit orders and trade intraday. Indian international funds have one NAV per day and no intraday flexibility. The combination of cost and higher operational flexibility widens the gap.
Second the tax treatment is more complex than it appears. The 24‑month holding period, 12.5 % long‑term capital gains rate, 25 % dividend withholding Form 67 and Schedule FA – each step can trip you up. Schedule FA is mandatory. Any US ETF holding, with zero gains must be disclosed. Failure to report can trigger scrutiny under the Black Money Act.
Third size the allocation deliberately. SEBI‑registered adviser Abhishek Kumar recommends 5 % to 15 % equity exposure for genuine diversification. Beyond that you are chasing performance and betting on currency not diversifying. If your home loan, school fees and retirement goals are all rupee‑denominated your core portfolio should be assets.
A US ETF is a tool. It solves the question of how to hold the world’s highest‑quality assets at the cost. It does not answer how much you should hold. Only you can decide that.
Frequently Asked Questions
1. US ETFs or Indian international funds. Which is tax‑efficient?
US ETFs held over 24 months qualify for a 12.5 % long‑term capital gains rate. Indian international funds (India‑registered funds investing abroad) are taxed at the slab rate regardless of holding period with no long‑term capital gains benefit and no ₹1.25 lakh exemption. For investors in brackets the difference is substantial.
2. How money do I need to start buying US ETFs?
Through platforms that support investing you can start with as little as $1 (about ₹90). GIFT City platform minimums depend on the ETF’s DR ratio, as low, as $8.4.
3. The US withholds 25 % on my ETF dividends. Can I get it back?
Not directly, but you can offset it. The 25 % withheld becomes a Foreign Tax Credit claimed through Form 67 against your tax liability. If your Indian slab is 30 % you effectively pay the 5 % difference.
4. Do I need to disclose US ETF holdings to tax authorities?
Yes. Any foreign financial asset, US ETFs must be listed in Schedule FA of your Income Tax Return if you are a Resident and Ordinarily Resident. This rule applies even if you did not sell any of those assets and did not receive any dividends. If you fail to disclose you may face penalties under the Black Money Act.
5. What is the $60,000 US estate tax threshold about?
Non-residents who own US-situs assets, such as US-domiciled ETFs that exceed $60,000 when they die may be subject to an 18%–40% US estate tax on the amount above $60,000. A common solution is to use Irish-domiciled UCITS ETFs. These ETFs follow the US indices but are not, in the scope of US estate tax.
