What is Liberalised Remittance Scheme (LRS)?
The Liberalised Remittance Scheme, or LRS, is a facility provided by the Reserve Bank of India that helps resident individuals to remit funds outside India for investment, education, travel, or other permitted purposes. Under LRS, you are able to remit USD 250,000 (or around Rs 2 crore) per financial year per person. This is an overall limit for all foreign remittances collectively, whether for investments in shares, mutual funds, property, or gifts to relatives abroad.
Investment in US Stocks under LRS
To invest in US stocks, you will need to have an account with a broker who has access to US markets. Your money that you remit to buy stocks will form part of your one-year LRS limit. If you are investing using family members, each member can use their individual USD 250,000 limit, so that a family can invest a higher total amount.
However, any remittance above Rs 10 lakh in a year is subject to Tax Collected at Source (TCS). TCS is now 20 percent on investment, though you can claim the credit while filing income tax return.
Tax laws for foreign investment
Gains on sale of US stocks are liable to taxation in India. If you are selling stocks after holding them for 24 months or more, then the gains are long-term capital gains and are taxed at 20 percent with indexation advantage. If you are selling shares within 24 months, then gains are short-term and are taxed at your relevant income tax slab rate.
US-traded companies also withhold a 25 percent tax on dividends paid to foreign investors. This tax is deductible when you file your Indian tax return under the India-US Double Taxation Avoidance Agreement (DTAA).
Things to keep in mind
Plan in advance for remittances to be made under the USD 250,000 limit. Document all transactions and declare foreign assets in your Indian income tax return. Using established brokers and following FEMA laws avoids penalties. Knowledge of LRS rules and tax implications guarantees foreign investments with the highest returns.
FAQs
Q1. Is it possible to invest more than USD 250,000 in one year?
No, the LRS maximum is USD 250,000 per person per financial year. Limits may be combined by households where two or more family members invest.
Q2. Should I pay tax in the US as well as in India?
Dividends are charged at 25 percent in the US but you receive a credit back in India under DTAA. Capital gain is charged in India alone.
Q3. Is TCS on remittance a tax?
TCS is not a further tax. It is paid in advance and can be varied at the time of your last income tax liability along with filing returns.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
