Investing in US stocks from India: routes, costs and rules

Why bother

The honest case for it is diversification, not returns. An investor holding only Indian equity is exposed to one country, one currency and one policy environment. Adding overseas exposure spreads that.

There is also a currency effect. If the rupee weakens against the dollar over time, a dollar-denominated holding gains in rupee terms independent of the share price. That works in reverse too, and should not be treated as a reliable source of return.

And a caution worth stating early. Many Indian investors buy US shares because they recognise the brands. Recognising a company is not analysis. The same discipline in company analysis applies, with the added difficulty that you are further from the market and the information.

The LRS limit

The Reserve Bank Liberalised Remittance Scheme allows a resident individual, including a minor, to remit up to USD 250,000 per financial year for permitted purposes.

Two things people miss. The limit is per person, so a family can each use their own. And it is cumulative across all purposes: education fees, travel, gifts to relatives abroad and overseas investment all draw on the same annual allowance.

LRS cannot be used for certain things, including margin trading and speculative activity. It is available to residents only, not to NRIs.

TCS, and what Budget 2026 changed

When you remit money abroad, your bank collects tax at source. It is not an additional tax. It is collected upfront and is adjustable against your income tax when you file, so it can come back to you as a refund.

The ₹10 lakh threshold was raised from ₹7 lakh with effect from 1 April 2025, and Budget 2026 did not change it. The threshold is per person per financial year and is aggregated across all your remittances, not per bank or per transaction.

So if you remit ₹8 lakh for education and ₹15 lakh for investment, the total is ₹23 lakh, and TCS applies to the ₹13 lakh above the threshold at the rate for the relevant purpose.

One technical note: this provision, previously Section 206C(1G), has been re-enacted as Section 394 under the Income-tax Act, 2025 from 1 April 2026.

The three routes

That third row deserves attention, because it solves most of the friction. An Indian fund that invests in overseas markets is an Indian investment. You buy it in rupees, no money leaves the country in your name, so there is no LRS usage, no TCS, and no foreign asset reporting.

The trade-off is that you cannot pick individual companies, and these funds have at times been subject to industry-level limits on overseas investment which can restrict fresh inflows. Check whether a fund is accepting new money before planning around it.

For most people whose actual goal is diversification rather than owning a particular company, the Indian fund route is meaningfully simpler and is worth considering first.

How the tax works, on both sides

This is where direct US investing gets genuinely more complicated than domestic investing.

Dividends

The United States withholds tax on dividends paid to Indian residents, at a rate of 25% under the India-US treaty. That is deducted before the money reaches you.

The dividend is then also taxable in India, added to your income at your slab rate. Because a treaty exists, you can generally claim a foreign tax credit for the US tax already withheld, which avoids paying twice. This requires filing the correct form along with your return.

Capital gains

The US generally does not tax capital gains for non-resident individuals on share sales. India does. US shares are unlisted in India for tax purposes, so they follow the rules for other assets rather than the equity rules: long term after 24 months, taxed at 12.5%, and short term gains added to income at your slab rate.

Note what this means. US shares do not get the 12 month threshold or the ₹1.25 lakh exemption that Indian listed equity receives. The tax treatment is less favourable than for domestic equity.

Gains are computed in rupees, so exchange rate movement between purchase and sale forms part of your taxable gain.

The reporting you must not miss

The disclosure requirement is separate from the tax. You can owe nothing and still be non-compliant by failing to report. Penalties under the black money legislation for undisclosed foreign assets are severe and are not proportionate to the size of the holding.

It also means you cannot use the simplest ITR forms. Holding foreign assets requires ITR-2 or ITR-3.

Keep records of every remittance, purchase, dividend and sale with dates and exchange rates. Reconstructing this later is unpleasant, and you will need it.

Given the treaty claims, foreign asset schedules and currency conversion involved, this is an area where a qualified professional earns their fee. This lesson is general information, not tax advice.