Looking to invest in stocks and properties abroad? Know the limits, avenues and taxation rules (2024)

Wish to diversify your portfolio beyond Indian stocks, mutual funds, real estate and debt? You can scour for investment opportunities overseas.

In a financial year, resident Indians can invest up to $2.5 lakh overseas under the Liberalised Remittance Scheme (LRS).

Overseas investment avenues are largely explored by high net worth individuals (HNIs). However, international mutual funds and exchange-traded funds (ETFs) have ensured that even retail investors get a chance to own a slice of celebrated global companies such as Apple Inc or Meta (Facebook).

If you are investing in stocks overseas directly, you must do your homework and study the basic information, financials and statutory filings by the company, among others. Several platforms offer this information free of cost.

If you do not have the time or expertise to take this route, you can invest through mutual funds. You can also explore real estate, another favourite with HNIs.

Here's a quick guide to decode the whys, hows and wherefores of investing overseas:

What can I buy on stock exchanges overseas?
Developed markets such as the US offers you access to emerging technologies in various industries. You can buy shares of companies in various businesses, some of which may not be available in India. For example, search engines, semi-conductors, electronic gadgets, and precious metal miners.

Also read: Want a pie of Apple or Facebook? Here's how you can invest in equities listed overseas

Isn’t it very expensive to buy shares in dollars?
You can buy fractions of shares listed overseas. This makes even high-priced shares accessible. You can also buy units of mutual fund schemes that offer exposure to specific themes or geographies. Many emerging themes offering high growth potential can be tapped through low-cost exchange-traded funds (ETF), both of which are available with mutual fund houses in India.

I want to invest overseas, but do not know what to buy. What are my alternatives?

Platforms offering overseas investments, offer basic information – financials, and statutory filings by the company, among others, free of cost on the platform. You can study these and make an informed decision while buying shares.

However, if you do not have the time or skill to pick stocks, you can invest through the mutual fund route. Indian mutual fund houses offer schemes that invest in shares listed overseas or buy units of mutual funds overseas.

You can, alternatively, invest in units of ETFs listed on foreign stock exchanges, if the underlying index or theme you are looking at is not available in India. You can also consult an investment advisor for a customised portfolio of stocks and mutual funds overseas.

How much money can I invest overseas?
In a financial year, an Indian resident can invest up to $2.5 lakh overseas under the Liberalised Remittance Scheme (LRS). Investments made in Indian mutual fund schemes that invest overseas are not accounted for while computing your remittances under LRS.

Though there is no minimum investment amount while investing overseas, there can be specific requirements as dictated by the broker you trade through. Also, product-specific requirements cannot be ignored.

For example, if you are investing in units of an international scheme of an Indian mutual fund house, then the minimum investment amount of approximately Rs 5,000 would apply in most cases. Also, in case of units of ETF, you would need to buy a minimum of one unit.

What is a Non-Resident Ordinary Rupee (NRO) Account?
An NRO account helps you manage Indian rupee income from sources like rent, dividends, or profit from sale of property or investments, here in India. It could be a saving account or a fixed deposit account. Here, both non-resident and resident Indians can be joint account holders.

The account also allows you to receive income from foreign currency converted to Indian rupees and in Indian rupees as well. The money lies in Indian rupees in the NRO account.

You can link your NRO account to make investments in India. There are certain drawbacks to holding NRO accounts. The interest you earn in the NRO account is subject to tax deducted at source (TDS).

Also read:Use NRO account for family expenses and NRE account for investments

What is Non-Resident External (NRE) Account?
The NRE account is an Indian rupee-denominated account. It could be savings, Foreign Currency Non-Resident Account (FCNR) or a fixed deposit account. An NRE account comes with many benefits.

The most important benefit is that the principal and interest incomes are fully repatriable, that means, you can move it out of India, as per your will and you don't need anyone's permission to repatriate this money.

The interest income on deposits earned in an NRE account is tax-free. You can also link your NRE account to make investments in India. The foreign currency deposited into the NRE account gets converted into Indian rupees.

As an NRI can I transfer funds from my NRO account to NRE account?
The ideal way to remit funds is through an NRE account, which is fully repatriable. Yes, you can also transfer money from your NRO account to NRE account.

There are multiple reasons to transfer money to an NRE account. You might need to transfer your income in Indian currency and withdraw to make investments and meet other expenses in your preferred currency abroad.

You might want to keep an NRO account only for collecting the Indian income and manage all investments in an NRE account that allows you the flexibility of full repatriation when you need the funds.

You need to submit the request along with Form 15CA/CB, which is a chartered accountant’s certificate. The $1 million per year limit applies for NRO to NRE transfers, too.

What are the tax implications on returns/income generated by my investments abroad?
Resident and ordinarily resident Indians have to pay tax even on income earned through foreign assets that they own in other countries. It will form part of their total income in India. This includes gains made on sale of such assets.

For instance, gains on sale offoreign stocksheld for more than 24 months attract a long-term capital gains tax of 20 percent plus cess and surcharge wherever applicable. Profits from sale of short-termholdings (held for less than 24 months) will be taxed at the slab rates applicable to you. You have to report your foreign assets in your income tax return (ITR) form (Schedule FA).

The tax department requires such taxpayers to furnish details like country where these assets are held, income generated by the asset, nature of ownership, and so on.

You also have to report foreign assets in the I-T return forms’ Assets and Liabilities Schedule if your income for the financial year is over Rs 50 lakh, failing which you might have to cough up penalties.