Last updated: 26 Oct, 2021 | 10:21 am
Investing in US stocks is gaining momentum in the last year with thousands of investors looking to diversify their investments to participate in the growth of disruptive technology companies listed in the US such as Facebook, Google, Tesla, etc, and take advantage of a strengthening dollar.
Below are 6 questions you may have as you begin your journey to begin investing in US Stocks
1. Is investing in US Stocks regulated/ Are we (Indians) allowed to invest in US stocks?
Yes. Investing in US Stocks is regulated by the Reserve Bank of India under the Liberalised Remittance Scheme (LRS). As an Indian national, you are allowed to remit up to $250,000 a year under this scheme. Investment in US stocks is classified under Foreign Portfolio Investments in the purpose code S0001 i.e. Indian Investment abroad – in equity capital shares.
Lakhs of Indians send over $15 bn of money overseas every year under the LRS scheme of RBI.
2. How do I remit money via LRS?
In order to invest in US stocks, you need to send your money to a regulated US broker overseas via an RBI regulated bank. While this process mostly involves paperwork and is expensive in India, the 2 in 1 account, provided by RBI regulated SBM Saving a/c has simplified this process and made it completely digital with Zero fixed fee for Fund transfers. It only takes less than 3 mins to open your SBM Savings a/c and your US Stock brokerage account and hence complete your fund transfer.
3. Who is my US broker? Is this regulated?
Using the INDmoney technology application, one opens an account with a regulated US broker, namely Drivewealth, LLC. This is regulated in all 50 states in the US by the U.S. Securities and Exchange Commission(‘SEC’), and Financial Industry Regulatory Authority (‘FINRA’). Further, the broker is also a member of Securities Investor Protection Corporation (‘SIPC’) which currently protects the cash and securities in the US brokerage account up to $500K (Rs 3.7 crore) (including $250K for cash claims).
4. Do I pay tax in the US or India?
Your investment in US Stocks is fully regulated. India and the U.S. have signed a Double Taxation Avoidance Agreement (DTAA). This prevents Indian Residents from Double Taxation. Any Capital gains on your US stocks investments are only taxed in India.
Upon creation of your US stocks 2 in 1 account, your broker will file a US tax compliance form called the W-8BEN form (Declaration) with your details and Nationality. This form acknowledges that you are a foreign investor earning an income in U.S. & further allows you to take capital gains tax exemptions in the U.S. More info on taxation here
However, you will be responsible for paying either short- or long-term capital gains tax in India based on your investment horizon.
5. What documentation and processes are needed?
To open your savings account, the regulated bank conducts an online KYC to be able to deliver to you a full KYC a/c. For remittance, the bank does its due diligence (Like your ITR and bank statements) and you digitally also submit a form A2 form/ declaration to the bank. Basis the diligence/ AML(Anti-money laundering) checks, the bank then approves/ disapproves the remittance.
To open a US brokerage account, the US broker conducts your KYC, your risk profile, and background checks on your affiliations. Besides, the US broker also submits your W-8BEN declaration.
6. What is the role of INDmoney?
Finzoomers Services Private Limited (“Indmoney”) is providing technology services to its users, the remitting Indian Banks, and US Broker Dealer. INDmoney as a technology services provider connect users with the banks, US Broker Dealer and also connect the Indian banks with US Broker Dealer for remittance of funds. Finzoomers Services Private Limited is not a stockbroker nor an investment advisor.
For more information and answers to your questions on US stocks click here