For many Indian investors seeking global returns, Wall Street has never felt closer. With a few clicks, anyone can now own a slice of Apple, Tesla, Nvidia, or Microsoft through overseas brokerage accounts and digital investing platforms. But the process is not as effortless as it appears. Beneath the promise of international diversification lies a complex network of remittance limits, tax rules, and disclosure requirements — and overlooking them can turn a profitable trade into a costly mistake.
Understanding LRS
The first port of entry for any cross-border investment is the Liberalised Remittance Scheme (LRS). Introduced in 2004 with a $25,000 annual cap, it now allows Indian residents — including minors — to send up to $250,000 (about Rs 2.08 crore) abroad per financial year for eligible purposes, such as buying foreign stocks. “Indian residents can invest abroad under LRS with a $2,50,000 annual limit,” said Subho Moulik, CEO & Founder at Appreciate. “But once remittances cross Rs 10 lakh in a year, a 20% Tax Collected at Source (TCS) kicks in for investment purposes.”
While TCS is fully adjustable against future tax liability — and can now be offset against monthly salary TDS using Form 12BAA — Moulik cautions that it still impacts cash flow until the adjustment or refund is processed. Other cost factors include currency conversion charges of about 1–1.2% and brokerage fees, all of which can eat into returns.
Investors remitting funds abroad must also submit Form A2 to their bank, selecting the correct RBI purpose code (S0001 for equity investments).
Dividends: The 25% US Cut
Many investors are caught off guard by the 25% US withholding tax on dividends from US-listed companies. This tax is deducted before the funds reach India, and the remaining 75% is then taxable again under Indian law at the investor’s slab rate.
“DTAA relief is available under the India–US tax treaty, allowing you to offset the US tax paid against Indian tax liability,” Moulik noted. “But it requires strict compliance — filing Form 67 before the ITR deadline and keeping proper documentation.”
This means a dividend declared in June might result in you seeing only three-fourths of it immediately, with the rest recovered later as a tax credit. Delays or errors in paperwork can mean losing the benefit altogether.
Capital Gains: US exempt, India not
The US does not tax capital gains for Indian residents classified as Non-Resident Aliens (NRAs), but India does. For US shares held more than 24 months, long-term capital gains are taxed at 12.5% without indexation after the Budget 2024–25 revision (earlier 20% with indexation). Short-term holdings are taxed at slab rates.
Moulik emphasises another nuance: “Gains must be calculated in INR using SBI TT buying rates on the purchase and sale dates, which can impact reported returns.”
International mutual funds bought in India face debt fund rules — long-term at 12.5% after 24 months and short-term at slab rates — which may make direct equity investing via LRS more tax-efficient.
Schedule FA
Every US stock holding, no matter how small, must be declared in Schedule FA of your Indian tax return. Non-disclosure can attract penalties up to ₹10 lakh per year and, under the Black Money Act, even prosecution.
The penalty threshold was relaxed recently: no penalty if the total value of such foreign assets (excluding property) is ₹20 lakh or less. Still, all assets must be disclosed, including details of acquisition cost, peak balances, and income earned.
GIFT City Route vs LRS
For larger investors, the GIFT City route — investing through regulated funds — can be more efficient. However, Moulik notes that retail investors often prefer direct investing via digital platforms like Appreciate: “It avoids high minimum investments and higher fund management fees, allowing low-cost access to global stocks, ETFs, and mutual funds.”
Tax disclosure
If a foreign asset hasn’t been declared, the safest course is to fix it voluntarily — through a revised return (within deadline) or ITR-U for the last two years, though penalties may apply. Professional advice is recommended to prevent larger compliance issues later.
Global investing offers diversification, exposure to innovative companies, and a hedge against the rupee’s decline. But as Moulik sums it up, “Every overseas trade leaves a compliance footprint back home. Understanding LRS rules, factoring in taxes, and ensuring full disclosure isn’t optional — it’s the difference between building wealth and inviting legal trouble.”