Zerodha's Global Stocks platform has granted Indian retail investors easier access to Wall Street. Before diving into the deep end, traders need to be aware about and accustomed to the associated costs, tax obligations and remittance rules.
At present, the platform allows resident Indians to invest in up to 2,000 US-listed stocks and around 1,000 ETFs through BSE India INX Global Access at GIFT City IFSC, without opening a separate demat account. The facility is not available for NRIs, HUFs, companies, LLPs and partnership firms.
besides 1,000 ETFs with assets under management exceeding $250 million, the platform allows traders to engage in fractional investing, where they can buy a fraction of a share instead of a full unit.
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Funding And Remittance Rules
Investors must transfer funds from their Indian bank account to a USD-denominated Global Wallet before purchasing US stocks. Transfers are currently supported through net banking and routed through select partner banks, including HDFC Bank, ICICI Bank, IDFC FIRST Bank, Axis Bank and Kotak Mahindra Bank.
All overseas transfers are governed by the Liberalised Remittance Scheme (LRS), under which resident Indians can remit up to $250,000 per financial year. The limit applies collectively across all eligible overseas transactions, including foreign travel, education and investments. The remittances are tracked against the investor's PAN, irrespective of the bank used.
What Charges Apply?
For currency conversion, banks apply a markup over the RBI reference rate. Zerodha says the markup ranges from 0.5% to 1.2%. Investors may also pay GST on currency conversion charges and bank remittance fees. While, for stock transactions, Zerodha charges brokerage of 0.10% of trade value, subject to a minimum of $0.01 and a maximum of $10 per trade.
Other levies include 18% IGST on brokerage, a 0.005% International Financial Services Centres Authority (IFSCA) turnover fee, and, on sell transactions, SEC and FINRA charges.
TCS Implications
Tax Collected at Source (TCS) comes into play when cumulative LRS remittances exceed Rs 10 lakh in a financial year. Overseas equity investments attract a 20% TCS rate on the applicable remittance amount once the threshold is breached. However, this is not an additional tax and can be claimed as a credit while filing income tax returns.
How Are US Stocks Taxed?
Under the India-US Double Taxation Avoidance Agreement, capital gains on US stocks are taxable only in India. US authorities do not levy capital gains tax on Indian residents investing in US equities.
US stocks qualify as long-term assets only after a holding period of more than 24 months. Long-term capital gains are taxed at 12.5%, plus applicable surcharge and cess. Gains from stocks sold within 24 months are treated as short-term capital gains and taxed according to the investor's income tax slab. Unlike Indian equities, there is no Rs 1.25 lakh annual LTCG exemption for US stocks.
For tax computation, gains must be converted into rupees using the State Bank of India Telegraphic Transfer (TT) buying rate prescribed under income-tax rules.
Disclosure Requirements
Resident and Ordinarily Resident (ROR) taxpayers must disclose foreign assets, including US stocks, ETFs and uninvested cash lying in the Global Wallet, under Schedule FA of their income tax return. Failure to disclose foreign assets can attract penalties under the Black Money (Undisclosed Foreign Income and Assets) Act.
US Estate Tax
Non American residents US estate tax exemption is limited to $60,000. If the value of US situs assets exceeds that threshold at the time of death, estate tax could apply at rates ranging from 18% to 40%.
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