Understanding Taxation on Foreign Investments

26 Oct, 2021

7 min read

1627 Views

icon
Foreign equities and mutual funds are becoming more popular these days as a way of diversifying an investor's portfolio while still profiting from market gains. Here we explain how taxation works on foreign investments.

Introduction

Today when investors seek to navigate the stock market, in their bid to diversify their portfolios, they may seek to own stocks pertaining to companies operating within varied industries. It also implies the addition of securities stemming from different parts of the world. In fact, several wealth management experts tend to recommend that investors divert a third if not more of their stock allocation toward foreign enterprises. This in turn allows them to be in possession of more efficient portfolios.

Those of whom are unaware of taxes applicable on international securities held, stand to be missing out on their true earnings capabilities.  This article seeks to shed light on taxation applicable to foreign investments.

A Brief Interview

As foreign stock is viewed as an equity investment it is important to understand the taxes applicable on such holdings. Investments in foreign stock are viewed as investments falling under unlisted shares. In accordance with this, keeping in mind the holding period for these investments, gains are viewed as long-term or short-term.

Should shares of a foreign company be held for a period that falls below 24 months immediately prior to the date of transfer, they are classified as short-term capital gains. Else, they are qualified as long-term capital gains.

That being said, should such shares be listed on an Indian stock exchange the period under considerations falls from 24 months to 12 months.

Long term capital gains derived via the sale of foreign stocks have a tax rate amounting to 20 per cent applicable in addition to a surcharge and health and education cess and the benefit of indexation.

On the flip side, short-term capital gains derived from the sale of foreign shares are taxed keeping in mind the slab rate appropriate for the taxpayer under consideration.

Additional Considerations

The Income Tax Act of India stipulates that the taxability of an individual is dependent upon their residential status. This status is determined by taking into account the individual’s physical presence in the country evident via the number of days they spend in India for a given financial year. In certain cases, the previous 4 years are also taken into account.

The Liberalized Remittance FEMA Scheme makes it a possibility for resident individuals to remit a sum of up to USD 250,000 or (INR 1.86 Crores approximately) each financial year for current or capital account transactions that are permitted.

Dividends drawn from foreign stocks held have taxes applicable to them that are the responsibility of Indian investors. The ‘income from other sources’ tab holds true here and is charged in accordance with the tax slab applicable to a given taxpayer.

Source rules may also kick in and imply that Indian investors may need to pay tax in the source country via which their investments are derived. That being said, India has double tax avoidance treaties in effect with over 150 countries today.

 

Keeping in mind the provisions outlined in DTAA, investors can claim credit for taxes they paid in foreign lands or alternative forms of relief may be possible such that they aren’t required to pay tax on the same income more than once.

Most important however is the requirement for all Indian tax residents to disclose each of their foreign assets and foreign income in their tax return. Regardless of whether or not there even is an income, all assets must be disclosed in a tax return. This reporting holds true in case of assets held at any time during a financial year. Even if you happen to sell an asset and don’t possess it as of March 31 of a financial year, you are still required to declare information pertaining to the asset along with income derived from it in your tax return.

Conclusion

Should you choose to invest in foreign stock it is important to be aware of taxes applicable on the same as the actual returns derived by you will incur a deduction from the taxes. Moreover, when you make investments in foreign companies you must be aware of and be willing to bear the currency fluctuations applicable. This is because your money is converted into United States Dollars prior to being invested.

Frequently Asked Questions

Q1. What foreign assets must you declare in your income tax return?
A1. The following foreign assets must be declared in an income tax return.

  • Cash value insurance contract or annuity contract
  • Custodian accounts
  • Depository accounts
  • Equity and debt instruments
  • Financial interest in any entity
  • Immovable property held
  • Trusts where the taxpayer is a trustee, a beneficiary, or a settler

Q2. Up to how much money can be remitted each year by a resident individual?
A2. Resident individuals – including minors – are allowed to remit up to USD 250,000 each financial year. This may be in the form of current or capital account transactions or else a combination of the two.

How would you rate this blog?

Comments (0)

Add Comment

Related Blogs

  • icon

    Preference Shares:...

    17 Mar, 2022

    6 min read

    READ MORE
  • icon

    Environmental Impact of...

    09 Nov, 2021

    7 min read

    READ MORE
  • icon

    5 Stocks to Watch Out for...

    05 Jan, 2022

    8 min read

    READ MORE
  • icon

    Understanding Different...

    09 Mar, 2022

    8 min read

    READ MORE
  • icon

    Invesco drags Zee to NCLT

    06 Dec, 2021

    8 min read

    READ MORE
  • icon

    Deadweight Loss Of Taxation

    31 Jan, 2022

    7 min read

    READ MORE
  • icon

    Taxation of Permanent...

    02 Dec, 2021

    7 min read

    READ MORE
  • icon

    Top 10 Most Inspirational...

    27 Apr, 2022

    7 min read

    READ MORE
  • icon

    What is Cryptocurrency?

    09 Oct, 2021

    7 min read

    READ MORE
  • icon

    IPO Advantages and Disadvantages

    03 Oct, 2021

    7 min read

    READ MORE
  • icon

    How To Use a Moving...

    07 May, 2022

    6 min read

    READ MORE
  • icon

    How Does Bitcoin Mining Work

    21 Jan, 2022

    7 min read

    READ MORE
  • icon

    Futures Options Strategy Guide

    19 Jan, 2022

    8 min read

    READ MORE
  • icon

    Capital Gains Tax

    23 Mar, 2022

    5 min read

    READ MORE
  • icon

    Ratan Tata's Youngest...

    15 May, 2022

    4 min read

    READ MORE
  • icon

    Raamdeo Agrawal: How...

    13 Jan, 2022

    10 min read

    READ MORE
  • icon

    Ashneer Grover Biography -...

    28 Feb, 2022

    5 min read

    READ MORE
  • icon

    Blue Chips Fuel Record

    25 Oct, 2021

    6 min read

    READ MORE
  • icon

    Taxation in 2022:...

    11 Apr, 2022

    7 min read

    READ MORE
  • icon

    LIC IPO Details: Should...

    18 Feb, 2022

    6 min read

    READ MORE
  • icon

    Long-Term Investments

    28 Jan, 2022

    7 min read

    READ MORE
  • icon

    Taxation Rules for Bond Investors

    03 Jan, 2022

    4 min read

    READ MORE
  • icon

    Lenskart Startup Story:...

    29 Mar, 2022

    6 min read

    READ MORE
  • icon

    What Happens to Bitcoin...

    14 Feb, 2022

    6 min read

    READ MORE
  • icon

    Investors Walk Away from...

    27 Oct, 2021

    7 min read

    READ MORE
  • icon

    What is Pre-Market...

    10 Feb, 2022

    6 min read

    READ MORE
  • icon

    Top 5 eco-friendly cryptocurrencies

    21 Dec, 2021

    9 min read

    READ MORE
  • icon

    Crypto Ban in India?

    25 Jan, 2022

    6 min read

    READ MORE
  • icon

    Stock Trading Bot

    03 Nov, 2021

    7 min read

    READ MORE
  • icon

    Stocks to Watch: NMDC,...

    24 Aug, 2021

    5 min read

    READ MORE
  • icon

    Is Google a Good Investment?

    11 Nov, 2021

    8 min read

    READ MORE
  • icon

    Success Story of Vijay Kedia

    21 Oct, 2021

    8 min read

    READ MORE
  • icon

    The Success Story of Jack...

    22 Oct, 2021

    5 min read

    READ MORE
  • icon

    LIC IPO: Benefits for Policyholders

    18 Feb, 2022

    7 min read

    READ MORE
  • icon

    Success story – Anil Ambani

    23 Sep, 2021

    6 min read

    READ MORE
  • icon

    Gold Bond Investment in India

    07 Oct, 2021

    6 min read

    READ MORE
  • icon

    Exploring Ed-Tech Giant...

    02 Mar, 2022

    8 min read

    READ MORE
  • icon

    India’s top 10 favourite...

    22 Dec, 2021

    8 min read

    READ MORE
  • icon

    Margin Trade Funding (MTF)

    21 Aug, 2021

    8 min read

    READ MORE
  • icon

    Byju’s IPO Plans

    06 Oct, 2021

    5 min read

    READ MORE
  • icon

    Nykaa Success Story -...

    22 Dec, 2021

    8 min read

    READ MORE
  • icon

    Tax free Interest Income in India

    22 Aug, 2021

    6 min read

    READ MORE
  • icon

    LIC Seeks to Appoint CFO

    13 Oct, 2021

    6 min read

    READ MORE
  • icon

    Income Tax in India -...

    02 Oct, 2021

    7 min read

    READ MORE
  • icon

    Options Trading Explained:...

    01 Oct, 2021

    8 min read

    READ MORE
  • icon

    Top 5 IPOs of 2021

    01 Feb, 2022

    6 min read

    READ MORE
  • icon

    Welfare Loss of Taxation

    28 Oct, 2021

    7 min read

    READ MORE
  • icon

    Clean Science, GR...

    23 Aug, 2021

    6 min read

    READ MORE
  • icon

    An Introduction to Trading...

    10 Nov, 2021

    7 min read

    READ MORE
  • icon

    LIC IPO: All we Know So Far

    05 Oct, 2021

    7 min read

    READ MORE
  • icon

    Paytm IPO

    08 Nov, 2021

    7 min read

    READ MORE
  • icon

    What is Guerrilla Trading?

    01 Nov, 2021

    7 min read

    READ MORE
  • icon

    Commodities Trading: An Overview

    25 Aug, 2021

    9 min read

    READ MORE
  • icon

    10 Ways to Profit in a Bear Market

    30 Nov, 2021

    8 min read

    READ MORE
  • icon

    IRCTC Stock and Share Split

    03 Dec, 2021

    7 min read

    READ MORE
  • icon

    Taxation on Mutual Funds

    04 Oct, 2021

    6 min read

    READ MORE
  • icon

    Upcoming IPO in Nov-2021

    08 Nov, 2021

    8 min read

    READ MORE
  • icon

    SEBI revises risk...

    07 Dec, 2021

    8 min read

    READ MORE
  • icon

    Should you Invest in the...

    30 Aug, 2021

    7 min read

    READ MORE
  • icon

    Foreign Investment Funds...

    02 Feb, 2022

    6 min read

    READ MORE
  • icon

    Forex Trading: A Beginner's Guide

    27 Aug, 2021

    6 min read

    READ MORE
  • icon

    Should You Invest in...

    10 Oct, 2021

    8 min read

    READ MORE
  • icon

    Exploring top Retirement...

    08 Oct, 2021

    7 min read

    READ MORE
  • icon

    Pair Trading Logic

    26 Aug, 2021

    6 min read

    READ MORE
  • icon

    Cryptocurrency Insurance,...

    08 Nov, 2021

    6 min read

    READ MORE
  • icon

    Double Taxation Hangs On...

    01 Dec, 2021

    8 min read

    READ MORE
  • icon

    ​​Sugar Stocks Down as Sensex Falls

    29 Oct, 2021

    7 min read

    READ MORE
  • icon

    Indian Railways Share...

    24 Sep, 2021

    7 min read

    READ MORE

Translate the power of knowledge into action. Open Free* Demat Account

* T&C Apply

Latest Blog

Ready To Trade? Start with

angleone_itrade_img angleone_itrade_img

Subscribe to #SmartSauda Newsletter

Open an account