US Stock Market
Investors from India can invest in the US stock market. The buying process involves an international brokerage house and of course one must adhere to RBI’s foreign exchange rules. Indian brokers such as HDFC Securities, Geojit, Stockal, etc. provide holistic US investing facilities. The brokerage companies ensure that the whole process is risk-free, secure, and legal by meeting all compliance requirements. So, investments in foreign markets are now a possibility. However, this comes with the attached question of taxability. Will I be taxed in two countries? Will any benefits accruing from a foreign investment be wiped off by the resulting tax burden?
Specifically, let us look at the income accruing from such an investment in US Stocks. We would then need to look at what possible income accrues from such an investment and what tax laws would be applicable to that income. In terms of categories of income, investment in US Stocks could result in dividend income as well as capital gains when one sells the stocks.
The tax impact would depend on whether the investor is a resident alien or non-resident alien per US Tax laws. Resident aliens are subject to the same rules as US citizens. Non-resident aliens, however, are not subject to capital gains tax (there are certain exceptions but these are not considered here as the discussion is limited to investment by Indian residents in US stocks.) Non- resident aliens are subject to 30% tax on dividends paid out by US Companies. The rates may be lower depending on the DTAA (Double Taxation Avoidance Agreement) between India & the USA. The important point would be that double taxation can be avoided in the case of dividends and if any tax is paid in the USA, it is also possible to claim an equivalent foreign tax credit while filing the India tax return.
While the broad rules have been discussed above, it will of course be prudent to consult a tax professional while investing, disposing of/selling an investment as individual tax treatment may differ depending upon various other factors as well which are outside the purview of this discussion.