What to understand before investing outside India

The routes available

Resident individuals can invest abroad directly under the Reserve Bank of India’s Liberalised Remittance Scheme (LRS). It allows remittances of up to USD 2,50,000 per financial year (April to March) for permitted current and capital account transactions combined, including investments.

Other routes include products offered in GIFT City’s International Financial Services Centre and Indian mutual funds that invest overseas. Industry-wide limits on overseas investment by Indian mutual funds have at times stopped them accepting new money.

Currency

Your return in rupees depends on both the investment’s performance and the exchange rate. A weaker rupee adds to returns measured in rupees, and a stronger rupee reduces them.

Tax collected at source

Banks may collect tax at source (TCS) on LRS remittances above a threshold in a financial year. TCS can usually be claimed against your income tax liability, but it affects your cash flow when you remit. The thresholds and rates have changed several times in recent years, so check the current position with your bank or the Income Tax Department before you send money.

Tax and reporting

Residents are generally taxed in India on their worldwide income. Resident and ordinarily resident individuals must also disclose foreign assets in the foreign assets schedule of their income tax return, even in years when those assets produce no income. Some countries also tax certain income or estates of non-residents. Discuss your situation with a tax adviser.

Practical costs

Currency conversion charges, platform fees, brokerage and fund expenses all reduce returns. Compare the total cost, not only the headline fee.