How to buy US Equities from India

By | 26th January 2019

Disclaimer: This post is for information purposes only and not an investment advise. Please consult your investment advisor before doing anything. I am not liable if you lose money or if anything in this post is not factual.

So you’re at a stage where you hold a decent chunk of Indian equities, but would like to diversify your holdings to overseas companies. Everytime you use your phone or shop online, you are making money for non-US companies. There is a substantial part of value globally that is not captured by Indian companies. As such it might be a good idea to diversify your holdings globally.

As a resident Indian citizen you have many options –

  1. Open an overseas trading account offered by Indian brokerages.
  2. Open an account directly with an overseas brokerage firm offering access to US markets.
  3. Invest in a domestic mutual fund holding US equities.

I’ll be talking about each one of these options in detail. You can invest upto 250,000 USD every year overseas. You cannot buy/selling anything on margin, deal with Forex or buy Foreign Currency Convertible Bonds(FCCBs) from Indian companies. The full list of what is allowed and prohibited is available on RBI’s website.

Option offered by Indian brokerages

Kotak Securities, ICICI Direct, India Infoline, Reliance Money and Religare all offer an option of access to overseas securities. However I found that the local ICICI Bank branch had no knowledge about the same and they made no effort to help me out. I also learnt from someone that they charge very high fees.

So I didn’t try this option out, but it’s a good option to have.

Directly from foreign brokerages

I decided to go for TD Ameritrade due to their low costs. Source: Investopedia

There are a few foreign/US brokerages that allow you to buy/sell equities. The prominent ones are:

  1. Saxo bank
  2. Charles Schwab
  3. Interactive Brokers
  4. TD Ameritrade

While some of these have dedicated teams to help you with an application from India, others do not. I chose TD Ameritrade as they had the lowest fees for the volume that I would be using. The per trade transaction cost is around 6.95 USD flat. The full price list for TD Ameritrade is present here. The list of documents I had to give digitally include:

  1. Filling out their form online , printing it and signing it.
  2. Aadhaar card and driving license for ID.
  3. Passport copy.
  4. Bank statements.
  5. W8-BEN form for tax declaration.

It took around 2 weeks for them to verify everything, although that could be because I had submitted everything during the winter holidays. While they do tell you to physically send the documents or fax them, they do accept documents over email too. You have to mail them to international@tdameritrade.com.

Taxation

India has a Double Taxation Avoidance Agreement(DTAA) with the US, which you can find on the Indian income tax website. In short for a non-resident alien:

  1. Capital gains will be taxed in India like debt. Taxes will not be withheld in the US by the broker.
  2. Dividends will be taxed at 25% in the US, which will be income from other sources. You can use deduction for these in India while filing your tax returns.

You may or may not need an International Tax Identification Number(ITIN) from US Internal Revenue Service(IRS). Authorised agents in India charge around ₹8000. I figured I didn’t need it and applied with just my Indian Permanent Account Number(PAN).

My W8-BEN form looked like this

Most brokers should have an international accounts opening team to help you with taxation related queries and how to fill out the requisite forms.

Transferring money

While TD Ameritrade offered many options for transferring money, only Wire Transfer seemed like a practical solution, which most banks offer without questions asked. I found the transfer costs and the spreads for currency exchange to be excessive for ICICI Bank. Do let me know if you know an another option.

International wire transfer form should be filled out something like this

For the transfer you’ll have to fill out the form from the bank, which includes reasons for transfer, if you want like a regular/guaranteed transfer(regular transfer means the receiving bank could deduct some amount for fees, which was 6 USD on a 400 USD transfer for me). The brokerage will give you an account where you can transfer money to. For TD Ameritrade I had to add the For Benefit Of(FBO) number on the receiver’s details(next to the account holder name) and in additional information.

If everything goes well the amount should be reflected in your brokerage checking account

If you filled out everything correctly, you should see the amount in the brokerage account in a few days. It took nearly 5 days for me. It would have been nice if they had an Indian bank account to make the transfer fees lower.

Invest in Mutual Funds holding US equities

This is a relatively easy option, wherein you can buy Mutual Funds in India which hold US equities. Some of these are:

  1. Frankin India Feeder – US Opportunities Fund
  2. DSP US Flexible Equity Fund
  3. ICICI Prudential US Bluechip Equity Fund
  4. PPFAS Long Term Equity Fund  – This fund has a part of it’s portfolio in international stocks but has > 65% of portfolio in Indian equities for getting equities treatment for taxation. It is one of my favorite funds.

If holding of Indian equities is < 65%, these the fund will be taxed like debt. Some of these funds also hedge for currency risks.

Thanks for reading. Do subscribe to my blog if you like the content. I will be covering more finance related topics in the future(along with the usual tech content). 🙂

22 thoughts on “How to buy US Equities from India

  1. Amit

    How does taxes work when you already have an active trading account in USA and you have moved back to India for good? I use my trading account of USA sometimes but I am not sure on taxes for gains

    Reply
    1. Varun Priolkar Post author

      Hi Amit,

      It’s best that you contact a tax consultant who understands US and Indian tax laws to help you out. I don’t know much about how taxation there would work, sorry!

      Reply
  2. Umesh Kudalkar

    There are few hurdles:

    (1) Threshold for U.S. Estate Tax on foreign citizens is $60,000/-. In case of demise of the holder, the U.S. brokerage would deduct 40% and give the remaining money back to the legal heir.

    (2) Income tax officers in India don’t recognise omnibus model for capital gains because the shares are not held in the name of investor. The shares are held in the name of foreign brokerage. Highest applicable tax rate may apply.

    (3) Because the shares are held in U.S. brokerage’s name, Indian investor takes credit risk of the broker. Think MF Global debacle. SIPC cover up to $500,000 may not apply to Indian citizen shareholders. This needs to be tested.

    (4) Debt fund taxation makes it unattractive.

    Reply
    1. Vamsi

      Umesh is right on (1). This is a big problem for Indian residents with big accounts in case of sudden death.

      Reply
  3. Aseem Kayastha

    Hi Varun, thanks for the information. Much appreciated.
    I want to know how to transfer back money to my Indian account. If I use TDA’s wire transfer option they ask me “Purpose of wire” and Indian bank’s corresponding bank in US. What are your thoughts? Is there any better way?

    Reply
  4. Navneet Singh

    Hi Varun,
    I am filling out the Form W-8BEN to open a TD Ameritrade account, just like you.
    I am still unsure what to fill in Part II Line 10. If I leave it blank, will I automatically be taxed according to India’s DTAA with USA(since line 9 says I am an Indian citizen)? Or is it mandatory to fill this line?
    If it is mandatory, what should I write in it?
    I am curious how you found out about the Section 10.2(b) that you’ve mentioned in your form. Did you actually read the entire document?
    I will be buying securities for long term with occasional swing/momentum trades (not intraday).
    Can I use the same section as yours?

    Reply
    1. Varun Priolkar Post author

      Hi Navneet,

      You can use the same as mine, but I don’t assume any responsibility if things go wrong. You should consult your tax adviser before doing anything.

      >I am curious how you found out about the Section 10.2(b) that you’ve mentioned in your form. Did you actually read the entire document?

      Yes.

      >If I leave it blank, will I automatically be taxed according to India’s DTAA with USA(since line 9 says I am an Indian citizen)?

      From what I understand the withholding for dividends will be 30% instead of 25% if you do not fill this in.

      Reply
  5. Navneet Singh

    Checking if the comments are getting posted. Please delete this one.

    Reply
    1. Varun Priolkar Post author

      Yes, the comments work, but I have to approve them before they become live. That is why they aren’t immediately available on the website.

      Reply
  6. Yashwanth Reddy Nakireddy

    Hi Varun,

    Thanks for sharing Information.

    we can buy the stock online using TD Ameritrade account right? May I know why Facebook Inc was mentioned on wire transfer form?

    Is it possible to Day trade US stocks using TD Ameritrade account?

    I wish you all the best.

    Thanks,
    Yashwanth

    Reply
    1. vamsi

      As an Indian resident, we can only open a cash account and not a margin account (which allows you to settle cash immediately and also give you margin). With cash accounts, you can still do short term trading, like intra-day or for few days. But the problem is, once you sell a position the settled cash will be available after 2 days (T+1day). Because of this restriction, it will be more practical to do swing, trend or position trading where you hold the positions for few weeks. Hope this helps.

      Reply
  7. shreedhar archik

    has anyone tried a new company called vested? seems a low priced option for indian investors

    Reply
  8. writer

    Hi varun,
    awesome post, i was searching for this kind of post for a long time.

    i have a few questions.
    1. which bank did you use to wire transfer your money?
    2.please do share about your experience in u.s stock market so far.
    3 In total how much tax do i have to pay? is it worth it?
    4.did you trade only facebook?

    please do reply.

    Reply
    1. Varun Priolkar Post author

      Thank you.

      1. ICICI Bank, although using a PSU bank would be cheaper on the currency spreads and cost of transfer.
      2. It’s been good. Most of my holdings are tech so could have recency bias.
      3. AFAIK it’s taxed like debt so 20%+indexation for holding more than 3 years and income gets added to slab rate if you sell before that. Do keep in mind that you will have to disclose these holdings under section FA on income tax form.
      4. I hold 4 different stocks, including tracking positions. I do not trade.

      Reply
  9. Rohit

    It is certified that remittance is not meant for overseas Forex Trading/Internet trading portal related transactions.

    (SBI’s wire transfer T&C)

    and there is no option for invensing in purpose of remittance

    How can I transfer funds to my TDA account… Do I need demat account for that?

    Reply
  10. Vaibhav Agarwal

    Hi Varun,

    It’s been more than a year now since you posted this article. I am thinking about opening an account with TD as well.

    Can you let us know if the steps and processes you mentioned in the article are still same or have they changed since then?

    I think brokerage on both intra and inter day trading for equities are now 0, similar to that of off our discount brokers like zerodha. Can you confirm this?

    Can you also share if there are any account opening/depositing and withdrawing charges involved here? How much time does it take to transfer money from my bank to TD and then withdrawing form TD to bank?

    Thanks a lot for this…

    Reply

Leave a Reply