Today, an affluent generation of youngsters is gung-ho about investing in US stocks from India. Their appeal lies in the fact that their products, services, and offerings currently enjoy enormous popularity. To draw a parallel to our daily lives — if we want to watch something on tv, we’ll likely turn on Netflix, or if we order something online, we’re likely to buy it from Amazon, given its convenience.
Since these publicly traded companies, along with several others (think Google, Microsoft or Meta), are American, they provide Americans with a string of investment opportunities. Now, investors like myself in countries like India have often hoped to cash in on these benefits for ourselves as well. However, the question then arises: How can Indians invest in US stock markets?
If you’re now wondering exactly how to invest in the US stock market from India, you can either invest your money directly or indirectly. India presently offers these investment avenues through which it is possible to invest in US stocks from India.
Continue reading to understand all that I discovered.
If you’re like me and are eager to invest in the US market from India such that you can enjoy the opportunity to generate returns, then you’re in luck.
Should you choose to invest directly in US stocks, you will need to open an overseas trading account with a broker in India or one located overseas. Here, you will need to pay attention to forex formalities that have been outlined under the Liberalised Remittance Scheme (or LRS), which permits all Indians to send up to USD 250,000 each year overseas.
You can also reach out to a foreign broker with a presence in India such that you can buy US stocks from India.
The National Stock Exchange’s International Financial Service Centre (or NSE IFSC) also allows you to invest in 8 American companies i.e., Amazon, Apple, Alphabet, Meta, Microsoft, Netflix, Tesla and Walmart.
If you prefer to invest in a pooled security, you can always invest in a mutual fund or ETF that either invests in US stocks or is a US entity.
Capital Gains and Dividends - Earnings you Stand to Make
By choosing to invest in the US stock market via either one of the aforementioned methods, you stand to earn profits in the form of capital gains or dividends. Capital gain refers to the profit you make when you sell your investment for a price exceeding the original price you purchased it for. In contrast, dividends are paid to you, the stockholder, from the profits of the corporation you’ve invested in.
Before diving into the tax implications of the earnings you stand to make, you must understand the purpose of the DTAA tax treaty. This treaty has been signed between India and over 80 countries such that taxpayers can avoid having to pay taxes twice on the income they earn in the source country and the residence country.
When you begin to calculate the taxes applicable to US stocks in India, you need to take into account the dividends that you earned. If you earn a US dividend, tax at a rate of 25 per cent applies. This dividend that you receive is also taxed in India, keeping in mind the income tax slab you fall under. The DTAA between India and the US enables you to use the tax that’s been withheld in the US to offset your tax liability in India.
To explain it simply, let's say you received $200 of dividend income, then you would receive $150. But the tax in India will be calculated at $200, and let's say the amount comes to $60. Since you’ve already paid $50, you will only have to pay $10 (This is just an example as calculations might differ in actual practice).
If you’re eager to hear some good news, you will be pleased to note that there is no capital gain tax in the US. That being said, India does levy taxes on this form of gain. Consider the two different categories that apply based on the time frame you’ve held your stocks.
This applies if you’re in for the long haul and have held stocks for more than 24 months prior to selling them and drawing capital gains. Here, you will need to pay capital gains tax at a rate of 20 per cent in addition to applicable fees and surcharges. For instance, I bought shares worth $100 and sold them at $150 ($50 profit), so my tax liability will be $10.
If you’ve held stocks for a period that falls below 24 months before selling them and earning capital gains, your gains will be added under your taxable income and taxed in accordance with your income tax slab. Continuing from the above example, if I sold the shares at $150, then the profit will be added to your current income and taxed as per the slabs.
Investing in US stocks is an attractive avenue. The returns can be good, and you can earn in dollars too. But don’t forget that you have to pay tax for that as well. The taxes you incur while investing in US stocks from India will depend on how you choose to invest in them and the earnings you generate. Choose wisely!
Yes, if you are investing in US stocks from India. It depends on how you choose to invest in them & your earnings. This is where India’s special treaty with 80 countries kicks in. It’s called the Double Taxation Avoidance Agreement (or DTAA). A good move to help investors avoid having to pay taxes twice on the income they earn — both in the source country and the residence country.
Here’s the thing, the US does not impose a capital gain tax. But India does. So here are the 2 things you will have to look out for:
Long-Term Capital Gains – Applies if you’ve held stocks for more than 24 months — before selling them for gains. Expect to pay capital gains tax at a rate of 20 per cent in addition to applicable fees & surcharges.
Short-Term Capital Gains – Applies if you’ve held stocks for less than 24 months before selling them and earning capital gains. Such gains will be added under your taxable income and taxed as per your income tax slab.