Investing in foreign markets can be rewarding, but many Indian investors hesitate due to tax complexities. Understanding how taxation works helps you stay compliant and avoid unexpected surprises. Here’s a simple breakdown of how tax on US stocks in India works—from dividends to capital gains and reporting.

Why Taxation Knowledge Matters

• Helps you plan your investments better.
• Ensures compliance with Indian tax laws.
• Prevents unnecessary penalties and confusion during filing.

Two Major Tax Categories

When you invest in US stocks, there are two kinds of tax implications:

Dividend Tax

• A 25% withholding tax is deducted at source in the US when a company pays dividends.
• Example: If you earn $100 in dividends, $25 is deducted in the US, and you receive $75.
• You must declare this income in India while filing your returns.

Capital Gains Tax

• Applies when you sell your US stocks or ETFs.
• The US does not tax capital gains for Indian residents.
• Instead, gains are taxable in India under the Income Tax Act.

Capital Gains Tax in India

• Short-Term Capital Gains (STCG)
  • If you sell before 24 months, the gains are added to your income and taxed as per your slab rate.
• Long-Term Capital Gains (LTCG)
  • If you hold for more than 24 months, the gains are taxed at 20% with indexation benefits.

Example Calculation

• Suppose you invest $2,000 (₹1.66 lakh) and later sell it for $3,000 (₹2.5 lakh).
• Capital Gain = ₹84,000.
• If held for over 24 months, you qualify for LTCG tax at 20% with indexation.

This illustrates how tax on US stocks in India can significantly affect your net returns.

Double Taxation Avoidance Agreement (DTAA)

• India and the US have signed DTAA.
• It prevents double taxation on the same income.
• You can claim credit in India for the tax already paid in the US on dividends.

Reporting Requirements

• Foreign assets must be declared annually under Schedule FA in your Income Tax Return (ITR).
• Non-disclosure can lead to strict penalties under the Black Money Act.

Tips for Tax-Efficient Investing

• Focus on growth stocks with lower dividend payouts.
• Hold for more than 24 months to enjoy LTCG benefits.
• Use ETFs with tax-friendly structures.

Conclusion

Understanding the taxation system is just as crucial as knowing where to invest. By familiarizing yourself with how tax on US stocks in India works—across dividends, capital gains, DTAA, and reporting—you can stay compliant, minimize surprises, and build a globally diversified portfolio with confidence.