🌍 Investing outside India, ADRs and currency risk

🎯 In 30 seconds: An Indian resident can own foreign shares in two main ways: send money abroad under the RBI's Liberalised Remittance Scheme (LRS), up to US$2,50,000 per person per financial year, and buy shares directly; or buy an Indian international mutual fund or ETF, which has to fit inside an industry-wide cap that sometimes runs out. Remittances for investment above ₹10 lakh a year attract 20% TCS, collected upfront and adjustable against your tax. Foreign shares add a risk Indian shares do not have: the exchange rate. A weaker rupee adds to your returns, a stronger one subtracts. Some Indian companies also list abroad through depository receipts, whose price should track the Indian share after converting currency.

Why look abroad, and what changes when you do

India is a large market, but it is still a small share of the world's listed companies. Some industries are thinly represented on NSE and BSE, and some of the world's largest businesses are listed only abroad. Owning a slice of them spreads your risk beyond one economy and one currency.

Think of a family that runs a textile shop in Surat and also keeps some savings in dollars because a son studies abroad. When the rupee weakens, the shop's imported machinery gets dearer but the dollar savings are worth more in rupees. Foreign shares work the same way. The business result and the currency result add together, and they can pull in opposite directions.

What changes when you invest abroad:

• Rules for sending money out, set by the RBI under FEMA, and a tax collected at source on the remittance.
• A different regulator for the shares themselves, with different disclosure rules and different investor protection.
• Currency risk on every rupee you send.
• More complex tax: foreign dividends, foreign tax withheld, and Indian reporting of foreign assets.

Route 1: LRS and buying foreign shares directly

Under the LRS, the RBI allows all resident individuals, including minors, to remit up to US$2,50,000 per financial year (April to March) for permitted current or capital account purposes, or a combination. Buying shares or debt abroad is a permitted capital account purpose, subject to the Overseas Investment Rules and Regulations, 2022. The scheme began on 4 February 2004 with a limit of US$25,000. As of the RBI's FAQ updated on 6 April 2023:

• A PAN is mandatory for every LRS remittance.
• You can retain and reinvest income earned on investments made under LRS. Money that is received and not reinvested must be brought back within 180 days.
• The RBI prescribes no rating or quality standard for what you buy. You are expected to do your own due diligence.
• Family members can club their limits for some purposes, but not for capital account investments unless they are co-owners of the investment.
• Banks are not meant to lend you money to fund LRS capital account remittances.

Some uses are not allowed under LRS, including remittances for margin or margin calls to overseas exchanges or counterparties, and remittances for trading foreign exchange abroad. That rules out using LRS money for leveraged forex or CFD trading on foreign apps. Leverage everywhere covers why those apps are a problem for Indian residents.

In practice, you open an account with a foreign broker, or with an Indian platform that partners with one, and your bank sends the money as an LRS remittance. Some platforms work through entities in the International Financial Services Centre at GIFT City in Gujarat, which is regulated by the International Financial Services Centres Authority (IFSCA), not SEBI. Whichever you use, check who regulates the entity that actually holds your shares, and what protection applies if it fails.

TCS on the money you send

When you send money abroad under LRS, your bank collects tax collected at source (TCS) on amounts above a threshold. The Budget 2026-27 table (February 2026) shows the rates for remittances whose total in a financial year exceeds ₹10 lakh:

The overseas tour package rate was also proposed to fall to 2%, which does not affect investing. These were Budget proposals for the year from 1 April 2026; check the current rates with your bank or a CA before a large remittance.

Worked example. You send ₹15 lakh in one financial year to a foreign broker to buy shares.

TCS is not an extra tax. It is collected in advance and shows up against your PAN, so you can adjust it against the income tax you owe for the year, or claim it back as a refund when you file your return. But your ₹1 lakh is locked up until then, which matters if you planned to invest it. Splitting a remittance to dodge the threshold does not work, because the threshold applies to the total in a year.

Route 2: international mutual funds and ETFs in India

Indian mutual funds can run international funds or fund of funds that invest in foreign shares or foreign ETFs, and some ETFs listed on NSE track foreign indices. You invest in rupees, with no LRS remittance and no TCS, because the fund itself makes the overseas investment.

The catch is a cap. Under SEBI's mutual fund master circular (March 2026), the whole Indian fund industry can invest at most US$7 billion in overseas securities, with each fund house limited to US$1 billion, plus a separate US$1 billion industry limit for overseas ETFs, with US$300 million per fund house. When the industry nears the cap, funds stop taking new money into their international schemes. Scheme documents warn that a fund may not be able to use its own limit if the industry limit is exhausted. Check whether a fund is accepting fresh investment before you plan an SIP into it.

A listed international ETF has another issue. When the fund cannot create new units, the ETF can trade at a large premium to its net asset value on the exchange, because buyers compete for a fixed supply. Paying a premium means paying more than the foreign shares are worth. Compare the market price with the indicative NAV (iNAV) before you buy. Mutual funds, index funds and ETFs explains iNAV.

Currency risk, worked through

Every foreign share has two returns: what the share did in its own currency, and what the currency did against the rupee. Your rupee return combines them.

Rupee return ≈ (1 + share return in dollars) × (1 + change in the dollar against the rupee) − 1.

Take a hypothetical US stock bought for US$100 when US$1 = ₹80, so it cost you ₹8,000. Three years later it is still US$100. Three possible exchange rates (all hypothetical):

Now combine them. If the share rises 20% in dollars and the rupee weakens 10% (from ₹80 to ₹88 per dollar), your rupee return is 1.20 × 1.10 − 1 = 32%. If the share rises 20% and the rupee strengthens 10% (to ₹72), it is 1.20 × 0.90 − 1 = 8%.

You can look up how the rupee has moved against the dollar in the exchange rate series of the RBI's Database on Indian Economy (DBIE) and see for yourself how much of past foreign returns came from the currency. Whatever it did in the past is not a promise for the next few years. Do not buy foreign shares as a bet on the currency unless you mean to.

Indian companies abroad: depository receipts

Some Indian companies have shares that trade abroad as American Depositary Receipts (ADRs) in the US or Global Depositary Receipts (GDRs) elsewhere. A foreign bank holds the Indian shares with a custodian in India and issues receipts against them, each representing a fixed number of underlying shares (the DR ratio). Indian rules treat issuing ADRs and GDRs as a fund raise, so the board meeting that considers one needs advance notice to the exchanges, and the shareholding pattern shows how many shares are held against depository receipts.

The receipt's price should track the Indian share, converted at the exchange rate. Example with hypothetical numbers:

The two prices can drift apart, because the markets are open at different hours, news arrives while one is closed, and moving shares between the two forms takes time and has rules. For an Indian resident it is usually simpler to buy the Indian share on NSE or BSE. The ADR price matters to you mostly as a signal: a big overnight move in a company's ADR often hints at how the Indian share may open. For the US side of how ADRs work, see the US course chapter on ADRs.

Tax and reporting, in brief

Foreign shares are taxed differently from Indian listed shares, and the new Income-tax Act, 2025 has applied from 1 April 2026. We have not set out rates here. A few points to raise with a CA:

• Foreign shares are not traded on an Indian exchange, so the Indian rules for listed shares and STT do not apply to them in the same way. Gains are taxed under the rules for other capital assets.
• Dividends from foreign companies are taxable in India. The foreign country may also withhold tax on them. India's tax treaties may allow a credit for that foreign tax.
• Indian tax returns ask residents to report foreign assets and foreign income. Missing this has its own penalties, separate from any tax due.

Taxes for traders and investors in India covers the domestic rules. For foreign holdings, this is a case where an hour with a CA is worth paying for.

Disclosure and legal differences

When you own a share listed abroad, the company files under that country's rules, in that language, on that country's calendar. If something goes wrong, your complaint goes to that country's regulator and courts, not to SEBI's SCORES system. Investor protection for a failed foreign broker depends on the broker's home country. Read who your contract is with before you send money.

Try it

1. Read the RBI's LRS FAQ. List three uses that are allowed and three that are not.
2. Find two Indian international funds or fund of funds on the AMFI website or the fund houses' sites. For each, check whether it is accepting fresh lump sums and SIPs right now, and its expense ratio.
3. Pick one listed international ETF on NSE. Compare its market price with its iNAV at the same moment and work out the premium or discount.
4. Do the currency exercise for any foreign share you know: look up its price and the dollar-rupee rate five years ago and today, and split the rupee return into the share part and the currency part.
5. Work out the TCS on a planned remittance of ₹12 lakh in one year for investing.

Sources

• RBI: Liberalised Remittance Scheme FAQs (updated 6 April 2023)
• Government of India: Budget 2026-27 speech, TCS rates on LRS remittances (1 February 2026)
• PIB: Income Tax Act, 2025 to come into effect from 1 April 2026
• SEBI: Master Circular for Mutual Funds (March 2026), overseas investment limits
• AMFI portal: example scheme information document of an overseas fund of funds, describing the overseas limits
• International Financial Services Centres Authority (IFSCA)
• SEBI: LODR Regulations, 2015, Regulation 29 (board meetings on ADR and GDR issues)