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NSE IFSC: From March 3, Indian investors will be able to trade in some US stocks through the NSE IFSC.

From March 3, Indian investors will be able to trade in some US stocks through the NSE IFSC

The NSE International Exchange (NSE IFSC), a wholly-owned subsidiary of the National Stock Exchange, will begin trading in select US stocks on March 3 for Indian investors (NSE). Investors can purchase NSE IFSC receipts on US stocks in the form of unsponsored depositary receipts (SDRs).

The top 50 US stocks will begin trading on this. In August last year, the NSE International Exchange started in August that trading in select US-based stocks would be made possible through the NSE IFSC platform.

To begin, 50 stocks were permitted to trade, from March 3 eight stocks will be available for trading which include Apple, Alphabet, Amazon, Tesla, Microsoft, Morgan Stanley, Nike, P&G, Coca-Cola, and Exxon Mobil.

The IFSC Authority will regulate stock trading, clearing, settlement, and holding in the United States. The Reserve Bank of India’s Liberalized Remittance Scheme (LRS) limits will allow Indian retail investors to transact on the NSE IFSC platform.

The Reserve Bank of India’s (RBI) Liberalised Remittance Scheme (LRS) limitations now stand at $250,000 per year, after allowing  Indian retail investors to transact on the NSE IFSC platform.

Resident investors will be required to create a Demat account with the IFSC, and stock receipts will be treated as foreign assets for tax purposes. Long-term capital gains will be taxed at 20% with indexation, while short-term capital gains will be taxed at the slab rate.

According to the NSE IFSC, this route simplifies and reduces the cost of international investing for Indian retail investors. When compared to the underlying shares sold in US markets, investors would be able to trade in fractional amount value, making it more affordable.

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Investors will be able to hold depository receipts in their gift City Demat accounts and will be eligible for corporate action benefits on the underlying stock. In recent years, investing in global stocks has gained popularity due to the US stock market’s decade-long bull run and the need to minimize single-country risk.

Currently, Indian investors can purchase US equities through designated internet brokers who have been granted a license to do so by Indian and US regulators.

Domestic investors will be required to open a Demat account with the IFSC, with stock proceeds being taxed as foreign assets. Short-term capital gains will be taxed at the slab rate, while long-term capital gains will be taxed at 20% with indexation.

“This would assist integrate Indian capital markets, specifically the IFSC, with the world economy and help recognize the IFSC’s potential as a growing international financial hub,” said Yashesh Ashar who is a partner at Bhuta Shah & Co. The IFSC’s success with this sandbox trial should open the door for more innovation.”

However, a few minor difficulties remain. It’s unclear whether SDRs can be treated like shares for tax purposes in India. This could have an impact on how profits from the sale of SDRs are taxed.

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For example, if an Indian resident invests directly in US equities and sells them after two years, the earnings from the sale will be classified as “long-term capital gains” for Indian tax reasons. Looking from a regulatory aspect, people residing in India cannot keep funds inactive in their IFSC bank account for more than fifteen days from the date of receipt into the account, since any funds remaining in the account for more than 15 days must be repatriated to a domestic INR account.”

“Such a regulation, combined with a lack of clarity on taxation of gains on the sale of SDRs, may deter Indians from investing in SDRs to be listed on the NSE IFSC platform,” said Dhaval Jariwala, partner at PNDJ & Associates.

These contracts are those which will not be subject to a predetermined price band. The exchange has set a dynamic pricing band at 10% of the base price to prevent erroneous order entry, according to the global exchange. With a minimum tick price of $0.01, NSE-IFSC receipts on US stocks will be traded in US dollars. Trading will begin from 20.00 hours (8 pm IST) and end at 2:45 am IST, in sync with the US markets (next day). When compared to the underlying shares traded on US markets, investors will be able to trade in fractional quantities/values. According to NSE-IFSC, the proposed structure will make US stocks cheap to Indian individual investors.

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NSE IFSC Clearing Corporation Limited (NICCL) would provide a solid risk management framework, enabling clearing and settlement of all depository receipt trades, and providing settlement assurance for all trades completed on the NSE IFSC platform. Furthermore, all trades will be covered by the NSE IFSC’s investor protection framework, according to the statement.

Now individuals can invest in global stocks through IFSC platforms, according to the RBI.  (To deepen financial markets in International Financial Service Centres and provide an opportunity for resident individuals to diversify their portfolio, the existing guidelines on Liberalized Remittance Scheme have been reviewed, and also it has been decided to permit resident individuals to make remittances under LRS to IFSCs set up in India under the Special Economic Zone Act, 2005, as amended from time to time) the statement said.

 

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