How to invest in foreign stocks from India in 2024 – Forbes Advisor India

Foreign investments by Indian residents are regulated by the Indian Exchange Control Regulations. On August 22, 2022, the Government of India and the Reserve Bank of India announced a new framework and revised reporting requirements that provide greater clarity and cover a broader range of economic activities.

Foreign investments by individuals resident in India can be in the form of either Overseas Direct Investment (ODI) or Overseas Portfolio Investment (OPI). Here is a detailed guide on the pros and cons of investing abroad, exchange control regulations, and tax reporting requirements for overseas portfolio investments (OPI) if you are an Indian resident or an individual.

How to invest abroad for Indian residents in overseas portfolio investment

Foreign investments by Indian residents must be within the overall limits of the Liberalized Remittance Scheme (“LRS”). Under LRS, Indian residents are eligible for permissible investments (OPI and ODI routes) and for other purposes (personal visits outside India, gifts or donations, raising relatives abroad, medical treatment abroad, education, etc.).

The new framework clarifies the definition of “overseas portfolio investment” or “OPI”, which was not defined in the previous regulations. An Indian resident can make overseas investments within her overall LRS limits.

Investment in stocks of foreign listed companies

A resident Indian may invest less than 10% in the shares of a foreign company listed on an overseas stock exchange, but must not control the foreign corporation in which he or she invests.

For example, an Indian resident who opens a demat account with a foreign entity to buy stocks in Amazon, Apple, Microsoft, Tesla, etc. usually falls under this category. The investment is below the overall LRS limit as explained above, and there are no reporting obligations under the new framework (i.e., no semi-annual filing of Form OPI is required).

Indian residents can open an overseas trading account with an Indian broker that is affiliated with international brokers like ICICI Direct, HDFC Securities, Kotak Securities, Axis Securities or with an India-based foreign broker like Charles. You can also open an account directly.Schwab, Ameritrade, Interactive Brokers, etc.

Investing in international investment trusts

Indian residents who are reluctant to invest directly in shares of foreign companies can alternatively consider investing in international mutual fund schemes that have exposure to international markets and invest in foreign stocks.

There are several international exchange traded funds (ETFs) that give you access to the Nasdaq and other major global indexes. Investments fall within the overall limits of the LRS and there are no reporting obligations under the new framework (i.e. no semi-annual Form OPI filings are required).

Investment in listed bonds

Indian residents who wish to invest in international markets with a stable source of income can invest in listed bonds of foreign governments and listed corporate bonds of foreign corporations.

Like investments in foreign equities and listed debt securities, investments in listed debt securities are covered within the LRS limits and are also not subject to reporting obligations under the new framework (i.e., semi-annual Form OPI filings are not required).

Acquisition of foreign securities by inheritance

A resident of India can acquire shares or other foreign securities in a foreign corporation by inheritance from a resident of India or a person resident outside India. Acquisition of foreign securities through inheritance does not count toward the LRS limit.

As there are no remittances outside India and there are no reporting obligations under the new framework, the LRS restrictions do not apply (i.e. filing of semi-annual Form OPI is not required).

Acquisition of foreign securities by gift

Indian residents are also free to acquire shares in foreign companies and other foreign securities by gift from other Indian residents who are their relatives. A resident can acquire foreign securities by gift from a person residing outside India as per the provisions of the Foreign Contribution (Regulation) Act, 2010.

Acquisition of foreign securities by gift does not count against the LRS limits and does not require reporting under the new framework as there is no remittance outside India.

Investment in an entity located in IFSC (Gift City, Gujarat)

Investments by Indian residents in 'International Financial Services Centers' or 'IFSCs', i.e. entities located in GIFT City, are considered foreign investments. A resident of India is permitted to invest in the equity capital of an entity domiciled in the IFSC as well as in the units of an investment fund or vehicle established within the IFSC within the overall limits of the LRS. Investments (including sponsor contributions) can be made.

Indian residents are also allowed to invest in foreign stocks through the International Stock Exchange established under IFSC. Some of the entities already present at IFSC in GIFT city Gujarat and providing a platform for overseas investments include India International Exchange Corporation (IFSC) Limited (India INX) and NSE International Exchange Corporation (NSE IFSC) .

Investments in entities domiciled in the IFSC are covered within the overall limits of the LRS and have no reporting obligations under the new framework (i.e. no semi-annual Form OPI filings are required).

Acquisition of sweat stock issued by a foreign corporation

Foreign companies may offer their employees or directors, in order to provide know-how or access to rights such as intellectual property rights or added value, their names at a discount or for non-cash consideration. Whatever it is, they often issue sweat stocks.

Residents may acquire shares in foreign companies, whether listed or unlisted, up to 10% of their capital.

There is no limit to the amount of remittances made for the acquisition of such Sweat Shares, but such remittances shall count towards the LRS limit of the party concerned.

For example, a resident can transfer $300,000 as a payment for sweat stock, but then cannot make any other transfers under the LRS because there is no limit for that financial year.

Acquisition of stock or interest under an employee stock ownership plan (ESOP) or benefit plan

A foreign company is often employed under an ESOP/employee benefit plan in an Indian office or branch of the foreign company or in an Indian company in which the foreign company holds shares directly or indirectly. issue shares to persons resident in India who are, or are officers of, India. .

Residents may acquire shares or interest up to 10% of their paid-up capital under an ESOP or employee benefit plan offered by such foreign corporation, whether listed or unlisted. . There is no limit to the amount of remittances made for the acquisition of such shares and such remittances shall count toward the Affiliate's LRS limit as explained above.

In this case, the employer's company must report the sweat stock shares on Form OPI within 60 days of the end of the six-month period in which the OPI was created.

Acquisition of minimum qualifying shares of a foreign corporation

A resident of India may also obtain minimum qualifying shares issued for management positions in a foreign company up to 10% of the paid-up capital of such foreign listed company or non-listed company in which he does not have a controlling interest. can.

Such remittances for the acquisition of lowest-class shares are covered within the overall limits of the LRS and are not reportable under the new framework (i.e., no semi-annual Form OPI filings are required).

International investment reporting requirements

Based on foreign exchange regulations:

Indian residents transferring money towards investment in a foreign entity are required to submit bank-specific documents (regarding LRS, procedural compliance for transfers outside India) at the time of transfer.

As discussed above, there are other compliance requirements under the new framework for making investments under OPI by Indian residents, unless the OPI is made through the acquisition of sweat shares or employee stock ownership plans (ESOPs). there is no. Must be reported on form OPI.

Under the Income Tax Act (IT Act):

Under the IT Act, all resident and ordinary resident (RoR) individuals are required to submit details of their investments in foreign stocks/assets in the 'Schedule FA' (i.e. Schedule of Foreign Assets) of their income tax returns there is.

If foreign investments are undisclosed in the income tax return, the income tax authorities can issue a notice to the individual for such undisclosed assets and can also treat such income tax return as a defective return. (u/s 139(9)). IT law.

The Black Money (Undisclosed Foreign Income and Assets) and Taxation Act 2015 (“BMA”) also imposes a stiffer penalty of Rs 10 million for non-disclosure of foreign assets in Schedule FA .

OPI – Tax Collected at Source (TCS) on remittances above Rs 700,000 under LRS

An Indian resident who remits funds outside India under LRS will be required to pay an additional amount in the form of TCS at the rate of 5% to an authorized dealer bank for amounts exceeding Rs 700,000. Assuming an individual intends to remit Rs 20 million in a financial year, he would then have to pay an additional Rs 65,000. [(INR 20 lakh – INR 7 lakh) * 5%].

Moreover, if the resident does not have a PAN card or Aadhar card, TCS will be collected at a higher rate of 10%.

Advantages and disadvantages of investing abroad

The main benefits of investing abroad are:

• Benefit from the recent easing in valuations of major stock market indices around the world.
• Invest in global blue-chip stocks such as Apple, Microsoft, Tesla, and Amazon.
• Diversify your portfolio by reducing country and currency risks from investing in different countries and currencies. Over the course of 2022, several currencies, including the Indian rupee, were seen depreciating against the US dollar.

The main disadvantages of overseas investment are as follows.

• A better understanding of the relevant markets and companies is required.
• Strengthening compliance and reporting requirements in India.
• Higher tax rate on capital gains compared to listed stocks in India

conclusion

Over the past few years, portfolio investments outside India by Indian residents have increased significantly, so the changes have far-reaching implications.