After seeing the movie ‘The wolf of the wall street’ many Indian investors were looking for a chance to directly invest in stock markets in US where scrip wise circuit breakers are absent. Since India does not have full convertibility of rupee and further governed by stringent RBI regulations, such investments were possible only through certain mutual funds and through designated online brokers who have the permission from US and Indian regulators. The stock markets in India have scrip-wise circuit breakers which sometimes is a hindrance for gutsy risk taking investors. Soon equipped with a magnifying glass through NSE’s GIFT city arm in the International Financial Service Centre (IFSC) in Gujarat, investors can earn in US dollars sitting here in India by investing in scrips having the largest market cap in the world.
The fund transfers on this platform for buying will be through the Liberalised Remittance Scheme (LRS) of the RBI. At present, every Indian is allowed to remit up to US$250,000 annually under the LRS. NSE IFSC Clearing Corporation will undertake clearing and settlement of all these trades in depository receipts and also provide settlement guarantee. Additionally, these trades will be covered under NSE IFSC’s investor protection framework. The arrangement will allow fractional ownership of US stocks for these investors, who would need to open demat accounts with entities based in GIFT City.
Apart from gains on investing under the above referred mode the investors are advised to note the following points:
- Eventhough gains earned in the form of capital gains, interest and dividends may be exempt in US subject to local state laws, every dollar/ rupee earned above the basic income-tax exemption limit are taxable in India as per Indian laws. Further certain beneficial tax rates available on sale of equity shares held in Indian stock market will not be available in sale of these stocks.
- Requisite disclosures of holding of these foreign assets needs to be made in the ITR form at the time of filing annual Income-tax return.
- Double Taxation avoidance benefits on tax withheld, if any, in US will be available in India.
- TCS at the rate of 5% is withheld by authorised dealers (banks) on remittance under LRS in excess of INR 7 lakhs on transfer of funds. The same can be claimed as a refund when the taxpayer files their income tax return
NPowersU Team Expert Opinion
This is yet another milestone in the history of India. Depending on the risk appetite, investors can diversify their portfolio in the stocks listed in US. However one needs to keep updated on local taxation laws and also documentation in consultation with the tax consultants. Any leniency thereof can cause heart burn at the time of Income-tax assessment. The last thing one will want is to earn income and pay penalties wiping off all the gains.
Now a ‘Will’ made by an Indian may also have an additional item in the form of shares and securities held in US stock markets. Let us end this blog with a funny statement:
“Where there is a ‘Will’ there is a ‘US’ way”
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