indian investors have three legitimate routes into us stocks and global funds . the choice depends on the investor’s style, budget, and willingness to handle paperwork.
direct stocks. apps like vested, indmoney, and hdfc securities global investing allow direct purchase of us stocks . the investor owns the shares. the investor controls the buy and sell decisions. fractional shares are available. this allows buying a portion of a high-priced stock. amazon at $3,000 per share becomes accessible with $300 .
indian mutual funds with international exposure. invest in rupees through mutual funds that track the s&p 500 or nasdaq 100. the fund house handles the remittance and compliance. the investor does not need to open an international brokerage account. the expense ratio is higher than direct investing. but the process is simpler .
gift city route. platforms like indmoney offer direct us stock ownership through india’s international financial services centre . this route offers a middle ground between direct investing and feeder funds. the tax treatment can vary based on how the transaction is structured .
the lrs limit and tcs
the reserve bank of india allows individuals to remit up to $250,000 per financial year under the liberalised remittance scheme . no special approval is required. the limit applies across all foreign remittances combined. investment. education. travel. gifts.
when money is remitted abroad, tax collected at source applies . no tcs on remittances up to ₹7 lakh in a year. 20% tcs on the amount exceeding ₹7 lakh . the tcs is not an additional tax. it is an advance payment. it can be claimed as a credit when filing the income tax return .
the threshold was earlier ₹10 lakh for certain purposes but for us stock investments, the ₹7 lakh threshold applies. it is worth checking the latest tcs rates before remitting.
taxation of us stocks in india
us stocks are treated as unlisted securities for indian tax purposes . this changes the holding period for long-term capital gains.
holding period. the 12-month threshold that applies to indian listed shares does not extend to foreign equities . gains are long-term only if the stock is held for more than 24 months . gains within 24 months are short-term.
dividends. the double-tax situation
when a us company pays a dividend, the us government withholds tax at source . the standard rate is 30%. this drops to 25% if the w-8ben form is filed with the broker . the w-8ben confirms non-us residency.
after us withholding, the dividend is also taxable in india. it is added to total income and taxed at the slab rate .
this creates the potential for double taxation. the mechanism to avoid it is the foreign tax credit.
claiming the credit. file form 67 electronically on the income tax portal . report the foreign income in schedule fsi of the itr. claim relief in schedule tr. retain documentation. foreign tax withholding certificates. brokerage statements. dividend statements . the credit is limited to the lower of the foreign tax paid or the indian tax payable on the same income .
reporting requirements. schedule fa and fsi
holding foreign stocks triggers reporting obligations. these are often overlooked.
schedule fa. disclose all foreign assets held during the financial year . this includes the us brokerage account and the shares held in it. the disclosure is required regardless of the value. regardless of whether any income was earned .
schedule fsi. report any income earned from foreign sources . dividends from us stocks. interest from the brokerage account.
itr form. itr-1 cannot be used. file itr-2 or itr-3 . filing is mandatory even if income falls below the basic exemption limit . failure to report foreign assets can trigger penalties under the black money act .
calendar year vs financial year mismatch. schedule fa runs on the calendar year. january to december. the itr runs on the financial year. april to march. the income in schedule fa will not tie out exactly with schedule fsi. this is expected, not an error .
the estate tax risk
this is rarely discussed. but it matters.
us stocks are treated as “us-situs assets” for us estate tax purposes. if the investor dies while holding us stocks, the holdings may be subject to us federal estate tax . non-resident non-citizens get a limited exemption of only $60,000 . the value above that threshold is taxed at progressive rates. potentially up to 40% .
india does not have an estate tax treaty with the united states. no higher treaty-based exemption is available .
how to reduce the risk. invest through non-us domiciled investment vehicles. irish-domiciled etfs that track us markets are not treated as us-situs assets . the investor holds units of a non-us fund rather than shares of a us corporation. this reduces estate tax exposure.
us stocks vs international mutual funds. a comparison
| factor | direct us stocks | international mutual funds (india) |
|---|---|---|
| holding period for ltcg | >24 months | >36 months for most funds |
| ltcg rate | 12.5% | 20% with indexation (pre-april 2023 units) |
| stcg rate | slab rate | slab rate |
| dividend tax | us withholding + india slab | included in fund nav |
| reporting | schedule fa and fsi | schedule fa only if held directly |
| minimum investment | fractional shares allow small amounts | ₹500 sip |
| control | full control | fund manager decides |
frequently asked questions
1. what is the lrs limit for us stock investments
$250,000 per financial year per individual. applies across all foreign remittances combined .
2. what is the tax rate on us stock gains in india
held over 24 months: 12.5% flat rate. held up to 24 months: taxed at slab rate .
3. do i need to declare us stocks in my itr
yes. itr-2 or itr-3 is required. schedule fa and schedule fsi must be filed. holding foreign assets triggers reporting obligations even if no income is earned .
4. how do i claim credit for us tax withheld on dividends
file form 67 electronically. report foreign income in schedule fsi. claim relief in schedule tr. retain foreign tax withholding certificates .
5. what is the us estate tax risk for indian investors
us stocks are subject to us estate tax on death. exemption is only $60,000 for non-residents. rates can go up to 40%. investing through non-us domiciled vehicles can reduce this risk .
