How To Invest In US Stocks: Key Reasons, Stepwise Guide And All You Need To Know
Despite the obvious benefits, investing in US stocks has always been a niche activity for the Indian investor
At a time when Indian markets have gone through a consolidation phase, giving largely muted returns over a one-year period, foreign markets such as the US have become an attractive choice for investors.
While Nifty50 is yet to reclaim its peak from over a year ago, US indices such as Nasdaq and S&P 500 have hit a string of record highs this year, buoyed by strong sentiment around artificial intelligence.
To put things in perspective, Nifty has given a return of just over 6% in the last 12 months. During the same period, the tech-heavy Nasdaq moved up 27%, while the S&P 500 gained more than 18%.
Even the industrial-heavy Dow Jones is up almost 13%, compared to the Nifty's 6.33% return.
Clearly, the US is an attractive hedge for investors when it comes to equity investing and helps one geographically diversify one's portfolio.
However, despite the obvious benefits, investing in US stocks has always been a niche activity for Indian investors, mostly due to tight regulations, lack of a transparent system and high taxation.
But that is now changing as more and more stockbrokers — such as 5Paisa and IndMoney — provide investors the option to invest in US stocks. Zerodha is expected to join the bandwagon soon, with Nithin Kamath recently confirming a potential 2026 launch.
How To Invest: Two Key Approaches
As things stand, there are two primary routes for Indians to invest in the US market.
The obvious route is the fintech broker or the direct way, where an Indian fintech platform, such as IndMoney or HDFC Securities, can partner with a US-based broker like Alpaca or DriveWealth.
The process is rather simple, as you just have to sign up, complete the KYC and link the bank accounts, which will be used to remit US dollars from your account, as part of RBI's Liberalised Remittance Scheme (LRS).
This route allows fractional investing, meaning you don't need to pay around $200 for an Nvidia share. You can own a fraction of the share, which can be worth as little as $5.
You directly own these shares, albeit through a foreign brokerage.
The new route involves setting up an entity in the GIFT City International Financial Services Centre (IFSC).
In this method, you invest using your regular Indian trading account. Instead of buying the share directly, you buy an Unsponsored Depository Receipt (UDR) for that share, which is traded on the GIFT City Exchange (like NSE-IX).
You can transfer the Indian rupees, which are then converted for the investments. That means you own an UDR, which is essentially a receipt representing the underlying US share held by a custodian.
The Hurdles: LRS and the 20% TCS
Regardless of the method you're using, investors looking to invest in US stocks always find themselves facing one key hurdle: Taxation.
The first hurdle is the Liberalised Remittance Scheme (LRS), with the RBI allowing each Indian resident to send up to $250,000 abroad per financial year for investment, travel and other purposes. All investments fall under this LRS bracket.
If you exceed the Rs 10-lakh limit per financial year, you will attract a 20% Tax Collected at Source (TCS).
Although TCS is an advance tax that can be claimed back or offset against any tax liability, a 20% TCS can prove to be substantial to an investor's cash flow.
For example, if you opt to invest Rs 10 lakh, you need Rs 12 lakh in your kitty, with the TCS amount being the additional Rs 2 lakh.
Let's now understand further taxation by assuming that an individual called Priya, who is in the 30% tax slab in India, invests $1,000 in the Apple stock. She has already used her Rs 10 lakh LRS limit for the year. And the stock is trading at $1,500 right now.
Since Priya held her Apple stock for 2.5 years (more than 24 months), her $500 profit is a Long-Term Capital Gain (LTCG). In India, this gain (converted to INR) will be taxed at a flat 20% (plus cess). The US will not tax this capital gain.
If Priya received dividends, the US would withhold a flat 25% tax. In India, she must add the full dividend amount to her income and pay tax at her 30% slab rate.
However, she can claim a Foreign Tax Credit for the 25% already paid to the US, effectively only paying the 5% difference in India.
Over time, buying US stocks is expected to become easier for Indians, and Zerodha's potential entry could benefit the sector.
