We investigated the etching characteristics of hydrogen iodide (HI) neutral beam etching (NBE) of GaN and InGaN and compared with Cl2 NBE. We showed the advantages of HI NBE vs Cl2 NBE, namely: higher InGaN etch rate, better surface smoothness, and significantly reduced etching residues. Moreover, HI NBE was suppressed of yellow luminescence compared with Cl2 plasma. InClx is a product of Cl2 NBE. It does not evaporate and remains on the surface as a residue, resulting in a low InGaN etching rate. We found that HI NBE has a higher reactivity with In resulting in InGaN etch rates up to 6.3 nm/min, and low activation energy for InGaN of approximately 0.015 eV, and a thinner reaction layer than Cl2 NBE due to high volatility of In- I compounds. HI NBE resulted in smoother etching surface with a root mean square average (rms) of 2.9 nm of HI NBE than Cl2 NBE (rms: 4.3 nm) with controlled etching residue. Moreover, the defect generation was suppressed in HI NBE vs. Cl2 NBE, as indicated by lower yellow luminescence intensity increase after etching. Therefore, HI NBE is potentially useful for high throughput fabrication of μLEDs.