Ways to invest in US stocks from India, compared

There are four practical routes from India to US equity exposure, and they differ on almost every dimension that matters: whether your LRS limit is used, whether you must file Schedule FA, how gains are taxed, and how much of the work falls on you. They are compared here rather than ranked, because they suit different circumstances.

Route one. A direct overseas broking account

You remit under LRS to a US broker, either directly or through an Indian platform that partners with one, and hold the shares in your own name.

• Uses your LRS limit, and TCS applies above ten lakh rupees
• Gives you actual ownership, voting rights and dividends
• Fractional shares are generally available
• Schedule FA disclosure required every year you hold
• Gains taxed in India, long term after twenty four months at twelve and a half per cent
• Dividends withheld in the US, then taxable in India with credit via Form 67
• US estate tax exposure on US-situs assets
• The most administrative work of any route

Route two. The GIFT City IFSC route

India's international financial services centre hosts an exchange where brokers offer access to US securities, commonly through unsponsored depositary receipts over US shares.

• Still uses your LRS limit, since it is treated as an overseas remittance
• Rupee to dollar conversion happens within India's own IFSC framework
• Settlement in a domestic time zone with domestic recourse
• A newer and narrower market than a US broking account, so instrument availability and liquidity are more limited
• Tax and disclosure treatment depends on the specific instrument and needs checking case by case rather than assuming

Route three. An Indian mutual fund that invests overseas

You invest in rupees in an Indian scheme, and the scheme holds the foreign securities.

• Does not use your LRS limit at all
• No Schedule FA disclosure, because you hold an Indian scheme rather than a foreign asset
• No TCS, no Form W-8BEN, no Form 67, no foreign tax credit to claim
• Systematic investment plans are straightforward
• A significant practical constraint: SEBI applies industry wide caps on how much Indian mutual funds may invest overseas, and schemes have periodically had to stop or restrict fresh subscriptions on reaching them. Availability is not guaranteed
• Taxed as a non equity scheme, and the twenty four month threshold applies to unlisted units
• You own units, not shares, so no voting and no direct dividend

By a wide margin this is the least administrative route. That is its main attraction and it is not a small one, given that the alternative involves four separate forms.

Route four. An Indian listed international ETF

An exchange traded fund listed in India that tracks a US index, bought through your existing demat account.

• No LRS, no TCS, no Schedule FA
• Units are listed in India, so the long term threshold is twelve months rather than twenty four, which is the most favourable holding period of any route here
• Subject to the same SEBI overseas caps, so units can trade at large premiums when a fund cannot create new ones
• That premium risk is the real catch. When creation is suspended, the market price can detach substantially from the net asset value, and buyers at a premium have overpaid for the underlying
• Choice of index is limited to what is listed

Summary

Read that table as a description of trade-offs, not a scoreboard. The direct route gives ownership at the cost of administration. The fund routes remove the administration and add availability and premium risks that are outside your control.

Which fits depends on the size of your allocation, your holding period, your appetite for annual compliance and whether direct ownership matters to you. Worth discussing with a qualified adviser rather than deciding from a comparison table.