If you want to invest in the US stock market to benefit from US stocks, you may start by opening an international trading account in India.
But before investing in US equities, here are the 5 important things to know before investing in US stocks.
1. Regulatory framework
One of the oldest, most effective, transparent, and well-regulated stock markets in the world is the one in the United States.
On US stock markets are listed some of the largest businesses in terms of market capitalization, sales, and profitability.
The worldwide exposure and flavor that US markets offer are crucial since many of these listed firms have a significant global presence, scale, and operational structure.
The regulatory body that monitors the operation of the US stock markets is the Securities and Exchange Commission (SEC), which was founded in 1934.
It guarantees the strict application of laws and rules that establish the highest standards of openness and integrity—essential for stock markets as well as for the safety and trust of investors.
2. Impact of Foreign Exchange
The volatility in the value of the US and other currencies should be taken into account while investing in US equities.
This is because before any gain (or loss) for an Indian investment is realized, it would be converted using the appropriate exchange rate in the Indian rupee.
The gains (or losses) will fluctuate in lockstep with changes in the exchange rate.
An Indian investor must be aware that the exchange rate can be unpredictable and is influenced by a wide range of political, economic, and supply and demand variables.
3. Liberalized Remittance Scheme
According to the Reserve Bank of India’s Liberalized Remittance Scheme, an individual may invest up to $ 250000 per year in US equities from India (LRS).
The cap covers any money sent abroad for purchases, travel, education, or other international transactions during the year.
The investor’s brokerage account has to be filled before making any investments in US equities. Investors must complete Form A-2, which is available from RBI-authorized dealers. Any sum over the $250000 cap requires RBI approval.
Additional read: US stocks for investing in child education
4. Taxation
To make your efforts worthwhile, it is crucial to take into account the tax consequences of your international assets.
Due to the Double Tax Avoidance Agreement (DTAA) between the US and India, the same income cannot be taxed twice on investments made in the US stock market.
5. Dividend tax
The dividends from US stocks are taxed at a fixed rate of 30% for overseas investors. However, as a result of the tax agreement between the US and India, citizens of India pay a 25% tax rate (deducted before distribution).
However, because of the double tax avoidance agreement between the US and India, the tax paid in the US may be claimed as a foreign tax credit in your domestic filing.
6. Capital gains tax
Your assets in the US are not subject to capital gains tax. However, India requires you to pay tax on your overseas capital gains. This may be divided into two groups.:
- Long-term capital gain (LTCG)
If you keep the equities for more than 24 months before realizing capital gains, you will be subject to indexation advantages and a 20% tax rate in addition to any relevant fees and other surcharges. - Short-term capital gain (STCG)
Standard income-tax regulations apply to any gains from assets held for less than 24 months, and they are added to your ordinary taxable income.
You must also take into account the recently implemented Tax Credited at Source or TCS. Under the new regulations, a 5% TCS will be applied to all international transfers over INR 7 Lakhs in a fiscal year. It is not an additional expenditure to deduct this advance tax when submitting your taxes each year.
Charges on US stock-broking account
Using an Indian stock brokerage account to invest in the US stock market is prohibited. You would need to create one with a US stock brokerage company instead.
To provide this service, the majority of Indian stock brokers who allow you to invest in US equities typically collaborate with a US stockbroker.
You would also be required to pay certain fees for a US stock broking account, just like you would for an Indian trading account.
This is something you should also take into consideration when you buy US stocks because these fees can reduce your earnings. These fees include Annual Maintenance Costs, brokerage charges, bank charges, transaction charges, and more.
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Thus, investing in US firms and equities may give investors access to the worldwide market, credibility, and an opportunity to increase their wealth.
