The US stock market is one of the best options to diversify the investment portfolio of Indian investors. The higher growth potential of companies and
The US stock market is one of the best options to diversify the investment portfolio of Indian investors. The higher growth potential of companies and less volatility in comparison to the Indian stock market are why investors prefer to invest in the US stock market. Investing in diverse stocks is the key to higher long-term returns. However, investing in US stocks from India makes it difficult to analyze the market conditions. Investors must conduct additional research and be highly vigilant when investing in a US stock. Factors to consider while investing in the US stock market are:
The Liberalized Remittance Scheme
According to the Liberalized Remittance Scheme (LRS), the Reserve Bank of India (RBI) allows every Indian investor to remit $2,50,000 per financial year. This scheme applies to every investor including minors. If the remitter is a minor, the remittance form must be signed by his/her guardian. Returns can be of different types of investment including securities, bank deposits, and more as part of remittance.
Investment in foreign stocks will attract taxes. As the returns are earned in the US and remitted to India, there are chances of double taxation. However, there is a Double Tax Avoidance Agreement (DTAA) between India and the US. It means that investors’ earnings are taxed only once. While completing the Demat account opening procedure, understand the tax implications well. The tax applicable on US stocks is as follows:
The dividends from US stocks are taxable at a rate of 30% for foreign investors. As there is a tax treaty between India and the US, the dividend tax applicable to Indian residents is 25%. For the tax paid on US stocks, Indian resident investors can claim Foreign Tax Credit.
Capital gain tax
Capital gains from investment in stocks are not taxable in the US. However, tax on foreign capital gains is applicable for Indian resident investors. Capital gains can be of two types. They are:
Long-term capital gain
The stocks held for more than 24 months are long-term capital gains. It is chargeable at a rate of 20%.
Short-term capital gain
The stocks held by investors for less than 24 hours are short-term capital gains. Short-term capital gain is treated as regular income and tax rates are applicable accordingly.
It must be noted that an additional Tax Credited at Source (TCS) is applicable on foreign remittances of more than Rs 7,00,000 per financial year when you invest in US stocks from India. The rate of TCS is 5% and it can be claimed by the investor while filing the income tax return.
Fluctuation in foreign exchange
The fluctuation in foreign exchange rates affects the US market stocks. A rise or decline in US dollar value leads to an increase or decrease in investment value. According to bank policy, foreign exchange conversion fees may be applicable while remitting the money.
There are many implications of a geographically diverse portfolio. The share market of a developed country like the US is less volatile and well-regulated. Investors get exposure to different economies and gain from the stocks in the global market.
Planning the investment portfolio depends on the financial goals of an investor. Depending on the expected returns and savings, long-term investment decisions are made. As the US stock market is one of the most efficient and well-regulated markets, investors can benefit from investments.
An Indian resident investor should have a US brokerage account to invest in any US stocks. The charges will depend on the platform an investor has chosen. The transaction charges vary based on the frequency of trading. Additional charges like currency conversion and remittance charges are also applicable.
Investing across geographies not only gives investors better investment opportunities but allows them to balance risk and return. Now that any Indian resident investor can invest in the US stock market, the chances of wealth creation are high. Make sure you are aware of all the factors mentioned above and the workings of the US stock market before investing.