What are ADRs? American Depositary Receipts Explained for Indians

For Indian investors looking to diversify globally, US markets offer access to some of the world’s biggest companies but not all of them are listed directly on American exchanges. This is where American Depositary Receipts (ADRs) come in. 

ADRs allow you to invest in foreign companies like Alibaba, Toyota, or ASML through US stock exchanges, without dealing with overseas regulations or currency complexities. In this guide, we break down what ADRs are, how they work, and what Indian investors should know before investing.

What Are American Depositary Receipts (ADRs)?

An American Depositary Receipt (ADR) allows you to invest in foreign companies through US stock exchanges, without dealing with foreign markets, regulations, or currency conversions directly.

In simple terms, an ADR is a certificate issued by a US bank that represents shares of a foreign company. Instead of buying shares from the company’s home exchange (like NSE in India or Tokyo Stock Exchange in Japan), you can buy ADRs on US exchanges like the NYSE or NASDAQ, just like any regular US stock.

Think of it as a middle layer: the bank buys and holds the actual shares in the company’s home country and issues ADRs to investors. You get the same economic benefits like price appreciation and dividends, while enjoying the convenience of investing through US markets.

How Do ADRs Work?

ADRs make it easy to invest in foreign companies through US markets. Here’s how the process works:

• Company partners with a US bank: A foreign company (like Toyota) ties up with a US depositary bank to list its shares in the US.
• Bank buys the original shares: The bank purchases shares from the company’s home market (like Nagoya Stock Exchange in Japan) and holds them safely
• ADRs are created and listed: The bank issues ADRs that represent those shares and lists them on US exchanges like NYSE or NASDAQ
• You buy ADRs like regular stocks: When you invest, you’re buying a representation of the actual shares, and the price moves based on the original stock and exchange rates

When Toyota pays dividends to its shareholders, the depositary bank receives those dividends in Japanese Yen, converts them to US dollars (after fees and taxes), and distributes them to ADR holders. Similarly, corporate actions like stock splits or bonus issues are reflected proportionately in the ADRs.

The ADR Ratio

An important concept is the ADR ratio, which tells you how many underlying shares one ADR represents. For example, if Infosys has a 1:1 ratio, one ADR equals one ordinary share traded on the NSE. If HDFC Bank has a 3:1 ratio, each ADR represents three underlying HDFC Bank shares. This ratio is set to make the ADR price more convenient for trading on US markets.

Types of ADRs: Sponsored vs Unsponsored

Not all ADRs are the same. The key difference is whether the company is directly involved in the ADR program.

Sponsored ADRs: In a sponsored ADR, the foreign company partners with a single US depositary bank and actively participates in the program. These are more structured and transparent.

• Level 1 Sponsored ADRs: Traded over-the-counter (OTC), not on major exchanges. The company has minimal SEC reporting requirements and only needs to publish basic financials in English. Easiest to set up, but offers limited visibility to investors
• Level 2 Sponsored ADRs: Listed on exchanges like NYSE or NASDAQ. Companies must register with the SEC and file annual reports (Form 20-F), improving transparency and credibility. However, they cannot raise new capital through ADRs
• Level 3 Sponsored ADRs: Highest level of compliance and disclosure, similar to US-listed companies. These ADRs are exchange-listed and allow companies to raise capital from US investors by issuing new shares.

Unsponsored ADRs: Unsponsored ADRs are created by broker-dealers without a formal agreement with the company.

• Multiple depositary banks can issue ADRs for the same company
• Typically trade over-the-counter with limited disclosure requirements
• The company is not involved and may not even be aware of these ADRs

Since 2008, SEC regulations have limited the creation of new unsponsored ADR programs.

Which Indian Companies Have ADRs Listed on US Exchanges?

As of March 2026, several major Indian companies have ADR programs listed on US exchanges. Here are some of the most prominent ones that Indian investors should know about:

How Can Indian Investors Buy ADRs Under LRS?

Indian investors can invest in ADRs just like any other US stock, mainly through two routes: LRS (Liberalised Remittance Scheme) or GIFT City.

1. Through LRS

Open an international trading account with platforms like INDmoney.

• Complete KYC and link your Indian bank account
• Transfer funds abroad under RBI’s LRS (bank converts ₹ to $)
• Use the funds to buy ADRs on US exchanges like NYSE or NASDAQ

2. Through GIFT City

• Invest via brokers offering access through India’s IFSC (GIFT City)
• No direct foreign remittance needed in some structures
• Still allows exposure to US-listed stocks, including ADRs

ADRs vs Direct US Stocks: Key Differences for Indian Investors

Dividend and Tax Treatment on ADRs for Indian Investors

When a foreign company (including Indian companies) pays dividends through ADRs, the US government typically withholds 30% tax at source for foreign investors. However, thanks to the Double Taxation Avoidance Agreement (DTAA) between India and the US, this rate is reduced to 25% for Indian residents.

To qualify for the reduced 25% rate, you need to file Form W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting) with your broker. Most Indian brokerage platforms that facilitate US investing will help you complete this form during account setup. The form certifies that you're a tax resident of India and eligible for treaty benefits.

For example, if an ADR declares a $100 dividend, you'll receive $75 in your account (after 25% withholding), not the full $100. The withheld $25 goes to the US Internal Revenue Service (IRS).

Taxation in India

Even though the US has already withheld tax, you must still declare and pay tax on the dividend income in India. Dividends from ADRs are taxed under the head 'Income from Other Sources' according to your applicable income tax slab.

Let's walk through an example. Suppose you receive a $100 gross dividend and fall in the 30% income tax bracket in India. The exchange rate is ₹93 per dollar.

Claiming Foreign Tax Credit

To avoid double taxation, you can claim the Foreign Tax Credit in India under Section 90 of the Income Tax Act. This allows you to reduce your Indian tax liability by the amount of tax already paid in the US (subject to certain limits).

Brokers like INDmoney provide automated tax reports like Form 1042-S, which documents all dividends paid and taxes withheld. You need this form when filing your Indian Income Tax Return. In your ITR, you'll report the dividend income in Schedule Foreign Assets and Foreign Income, and claim the Foreign Tax Credit in Form 67.

Capital Gains Tax

When you sell ADRs at a profit, capital gains tax applies based on the holding period:

Reporting Requirements

Indian tax residents holding foreign assets (including ADRs) must disclose them in their Income Tax Return. You need to report:

• Details of all foreign bank accounts and foreign investments in Schedule Foreign Assets (FA)
• Any income earned from these assets in Schedule Foreign Sources of Income (FSI)
• Foreign Tax Credit claimed in Form 67

Failure to report foreign assets can result in penalties and scrutiny from tax authorities, so maintaining accurate records and timely filing is essential.