Recently, the Indian government announced a 20% tax on international transfers under the liberalised remittance scheme (LRS) without any threshold restriction, which makes direct investments in US stocks less alluring for individual investors. When filing income taxes, the tax collected at source (TCS) will appear as a tax credit on Form 26AS and can be offset against other taxes owed.
Note- Form 26AS is a declaration that lists all deductions made as TDS (Tax Deducted at Source) or TCS (Tax Collected at Source) from a taxpayer’s various sources of income. Additionally, it includes information on the taxpayer’s high-value transactions and advance tax or self-assessment tax payments.
Additionally, the Reserve Bank of India (RBI) directed SBM Bank to suspend LRS transactions in January 2023, which increased the difficulty and expense of investing abroad through LRS. Due to this, retail investors now have even fewer feasible options for direct investments in US markets.
However, through Indian mutual funds that invest in US equities and funds, investors can still access US markets. This is a realistic choice because these mutual funds are still free from LRS. The indirect approach is recommended for small investors since it spares them the headache of setting up the infrastructure for direct investing and does not require upfront costs.
Since many of these mutual funds in India are unable to take new investments, the entire industry is looking for higher limitations to be implemented for mutual funds investing in foreign stocks and funds. Investors who want to use mutual funds to invest in the US market can contact the asset management company (AMC) to see which funds are still taking new money.
Only a small percentage of high and ultra-high-net-worth people (HNI/UHNIs) can still make direct investments in US markets. Due to the policy change, it is now more expensive for retail investors to participate directly in international shares, so they should look into other investment opportunities in the US markets.
While making direct investments in US equities from India may not be as appealing, through Indian mutual funds, investors can still benefit from the expansion of US tech titans like Apple, Meta, and Alphabet. Investors should look into alternate possibilities as the global economy changes to meet their financial goals.
Disclaimer: Investments in the securities market are subject to market risks; read all the related documents carefully before investing.