Investing in US stocks from India: the pros and the cons

Investing in US shares from India is straightforward to do and considerably less straightforward to account for. The case for it is real, and so are the costs, most of which appear after the investment rather than at the point of buying. Both sides are set out here so you can weigh them yourself.

The case for

Companies you cannot otherwise own

Much of the world's semiconductor, software, pharmaceutical and consumer technology capacity is listed in the United States and nowhere else. No Indian-listed instrument gives you direct ownership of those businesses.

Diversification away from a single economy

An Indian portfolio is concentrated in one economy, one currency and one policy environment. Holding assets elsewhere reduces that concentration, which matters more when your income and your property are also rupee assets.

Currency working in your favour

A dollar asset held by a rupee investor gains when the rupee weakens against the dollar, independently of what the share does. Over long periods this has added to returns for Indian investors, though it is a two way effect and not a guarantee.

Fractional ownership

Most platforms let you buy a fraction of a share, so a high priced US share is accessible with a small amount. Indian shares must be bought whole.

The case against

Tax collected at source on the way out

Twenty per cent above ten lakh rupees of remittance in the year. Recoverable when you file, and a real cash flow cost in the meantime.

The tax treatment is worse than for Indian equity

Foreign shares are not listed securities for Indian tax purposes, so the long term threshold is twenty four months rather than twelve. Below it, gains are short term and taxed at your slab rate. Above it, twelve and a half per cent, and the annual exemption available on Indian long term equity gains does not apply.

Dividends are taxed twice, then credited

The United States withholds tax on dividends paid to an Indian resident, at a rate set by the treaty and claimed by filing Form W-8BEN with your broker. The dividend is then taxable in India as well, with credit for the US tax available. Claiming that credit means filing Form 67 within time and completing Schedules FSI and TR. Miss the form and you pay twice.

Disclosure obligations that continue for years

Every US share you hold must be disclosed in Schedule FA for as long as you hold it, reported for the calendar year rather than the financial year. This applies whether or not you sold anything and whether or not you owe any tax. The penalty for failing is ten lakh rupees per assessment year.

US estate tax, which almost nobody mentions

US-situs assets held by a non-resident alien are exposed to US estate tax above a threshold that is very low, and the rate is high. Your heirs deal with it, not you, and India has no estate tax treaty with the United States that solves it. Anyone building a substantial direct US holding should take advice on this specifically rather than discover it later.

Costs that accumulate

• Foreign exchange conversion spread on the way out and on the way back
• Bank remittance charges per transfer
• Platform or brokerage fees
• Repatriation costs when you eventually bring money home

Where the balance tends to sit

For a large, long held allocation the diversification and the access to businesses unavailable here can outweigh the friction. For a small or short term position, the accounting burden, the twenty four month threshold and the annual disclosure obligation are heavy relative to the amount involved.

Which of those describes your situation is a question for you and your adviser. The point of listing both columns is that the second one is usually discovered rather than considered.