Investing in US stocks has become increasingly popular among Indian investors looking to diversify their portfolios and gain exposure to global companies. However, understanding the tax rules is essential to avoid compliance issues and file your income tax return correctly.
In this article, we are going to learn about how capital gains from US stocks are taxed, the difference between long-term and short-term gains, dividend taxation, the benefits of the India-US Double Taxation Avoidance Agreement (DTAA), foreign tax credit, and the key ITR reporting requirements for Indian investors.
Key Takeaways
- Capital gains on US stocks are taxed only in India.
- US dividends are subject to a 25% withholding tax, but you can claim a foreign tax credit.
- Convert all amounts into INR using the Buying Rate.
- Resident taxpayers must disclose foreign assets under Schedule FA.
- File Form 67 to claim tax credit on US dividend withholding tax.
- Choose ITR-2 or ITR-3 based on your income sources.
How are Capital Gains on US Stocks Taxed?
Capital gains arise when you sell a US stock at a price higher than its purchase price.
For example, suppose you purchased Apple shares worth $500 on November 16, 2022, and sold them on November 18, 2024, for $765. Your capital gain would be $265, and this profit would be taxable in India.
The US does not tax capital gains earned by Indian residents on US-listed stocks. Instead, the gains are taxed only in India under the DTAA.
Long-Term vs Short-Term Capital Gains
The tax treatment depends on how long you hold the shares.
Long-Term Capital Gains (LTCG)
If you hold US stocks for more than 24 months, the gains qualify as long-term capital gains.
- Tax rate: 12.5%
- Applicable surcharge and cess are charged separately.
The 12.5% rate was introduced after Budget 2024, replacing the earlier 20% tax on long-term gains from foreign assets.
Short-Term Capital Gains (STCG)
If the shares are sold within 24 months, the gains are treated as short-term capital gains.
These gains are added to your total income and taxed according to your applicable income tax slab. For instance, if you fall under the 30% tax slab, your short-term gains will also be taxed at 30%.
How to Calculate Capital Gains in INR?
Although US stocks are bought and sold in US dollars, taxes are paid in Indian rupees.
First, calculate the gain in dollars and then convert it into the INR Buying Rate applicable on the last day of the month preceding the sale.
For example:
- Capital gain: $265
- Buying Rate (October 31, 2024): ₹84.09
Taxable gain:
$265 × ₹84.09 = ₹22,284
This INR amount is used for tax calculation.
How are US Stock Dividends Taxed?
Dividends paid by US companies are subject to a 25% withholding tax in the US.
Suppose you receive a dividend of $100. The US deducts $25, and you receive $75.
The good news is that this tax is not lost. Under the India-US DTAA, you can claim the withheld amount as a Foreign Tax Credit (FTC) in India by filing Form 67 and Schedule TR.
Dividend income should be converted into INR using the Buying Rate on the last day of the month preceding the dividend payment.
Can Capital Losses Be Set Off?
- Short-term capital losses can be adjusted against both short-term and long-term capital gains.
- Long-term capital losses can be adjusted only against long-term capital gains.
These provisions can help reduce your overall tax liability, subject to the Income-tax Act.
Reporting US Stocks in Your Income Tax Return
Indian residents must disclose foreign investments even if they have not earned any profit or dividend.
The correct ITR form depends on your income:
- ITR-2: For individuals earning salary, capital gains, or dividend income.
- ITR-3: For individuals with business or professional income.
Important schedules include:
- Schedule FA: Disclosure of foreign assets such as US stocks and foreign brokerage balances.
- Schedule FSI: Reporting foreign source income.
- Schedule TR: Claiming relief for foreign taxes paid.
- Schedule OS: Reporting dividend income under "Income from Other Sources."
To claim credit for the 25% US withholding tax on dividends, you must also file Form 67 before filing your income tax return.
Do You Need to Report US Stocks Even Without Gains?
If you are a Resident and Ordinarily Resident (ROR), reporting foreign assets under Schedule FA is mandatory, even if:
- You did not sell any shares.
- You earned no dividend.
- You made no profit.
Failure to disclose foreign assets attracts penalties under the Black Money Act.
What is TCS?
Tax Collected at Source (TCS) applies when remitting money abroad under the Liberalised Remittance Scheme (LRS).
Currently:
- No TCS applies on remittances up to ₹10 lakh in a financial year.
- Remittances above ₹10 lakh may attract 20% TCS, subject to applicable provisions.
TCS can be claimed while filing your income tax return, subject to eligibility.
Is the US Estate Tax Applicable?
For non-US residents, including Indians, US estate tax applies if the value of US-situs assets exceeds $60,000 at the time of death. The applicable tax rate can range from 18% to 40% on the taxable amount above the exemption limit.
Conclusion
Investing in US stocks can help diversify your investments, but understanding the tax rules is essential for smooth compliance. Indian residents need to pay tax on capital gains in India, while dividend taxes deducted in the US can be claimed as a foreign tax credit under the DTAA. By selecting the correct ITR form, reporting foreign assets accurately, and filing Form 67 where applicable, investors can avoid penalties and make tax filing much simpler.
Disclaimer: Access to US securities is offered via IFSCA Global Access route. Angel One Limited is registered with IFSCA as a Global Access Provider. Investment in securities market is subject to market risks, read all the documents carefully before investing. Any reference to securities is indicative and not a recommendation. Angel One Limited claims no right, title or interest therein, and no endorsement or affiliation is implied. Office address: Unit No. 256, Seats 1 to 4 located on the first floor of Pragya Accelerator II, Building -15B, Block – 15, Road No- 1C, Zone-1, GIFT SEZ, GIFT City, Gandhinagar – 382050. IFSCA Broker-Dealer Registration No. CMI2026BDK1061, GAP Registration No. IFSCA/GAP/BD/2026-2027/016.
