With the increase in globalization trend in India, the scope for International investments has increased drastically. Investment in Foreign Equity helps diversify one’s portfolio risk as they have a lower correlation with the Indian equity market, thereby allowing an investor to grow along with other potential companies. Such investments are governed by two Regulatory laws in India viz; the Foreign Exchange Management Act, 1991 and Income Tax Act, 1961.
Understanding the basics of investments in foreign equity is made simpler with the help of a detailed analysis sketched out in the attached PDF which broadly talks about;
- The different ways/methodology of Investment in Foreign Equity,
- The modes in which investment can be made i.e LRS and ODI,
- The tax and FEMA implication for each scenario of investment including gift and inheritance.
Lets have a look!!
Inside this Article We shall see:
- Ways of Investments in Foreign Equity
- Liberalized Remittance Scheme (“LRS”)
- Overseas Direct Investment (“ODI”)
- Gift/Inheritance of shares
- FEMA Comparison
- Income Tax Implications
International investments present interesting opportunities. International stocks and funds have done very well, generating handsome returns, which makes it a desirable Investment to have, as a part of any Individual’s Portfolio.
Foreign Equity Investments presents various advantages:
- Diversification – to combine assets with low correlation to reduce risk
- To get exposure to new markets, and unique companies
- Gain from Currency exposure (think USD vs INR)
- As a founder, to have foreign footsteps of Indian Entity
But Individuals often wonder where to start and how these stocks are treated for taxation. Overseas Investments are not complicated, if you know the ways & means of investing and understand the regulatory aspects.
In India, there are two major regulatory laws guiding Foreign Investments viz;
- Foreign Exchange Management Act, 1999 and
- Income Tax Act, 1961.
In this article, we will be looking into procedural and compliance aspects of investing in Foreign Equity from the above Regulatory perspective.