Introduction
As more Indians expand their portfolios globally, especially with a growing interest in the US stock market, understanding the tax implications becomes just as important as selecting the right assets. International investing is not just about market exposure—it comes with cross-border tax responsibilities and regulatory disclosures.
Whether you are new to overseas investing or already hold international assets, this guide outlines key aspects of tax on US stocks in India and what every investor should know when making a US stock investment from India.
1. Capital Gains Tax – What You Pay When You Sell
When you sell a US stock and make a profit, it is considered a capital gain. In India, these gains are taxed based on the duration you held the stock:
- Short-term capital gains (STCG): If held for less than 24 months, gains are taxed as per your applicable income tax slab.
- Long-term capital gains (LTCG): If held for more than 24 months, taxed at 20% with indexation benefit.
While capital gains on US stocks are not taxed in the US, India imposes tax on US stocks in India, which must be reported when filing your Indian income tax return.
2. Dividend Income – Double Taxation Alert
US companies often pay dividends quarterly. Here’s how this income is taxed:
- The US government withholds 25% of your dividend at source.
- In India, dividend income is taxable under “Income from Other Sources” and taxed as per your income slab.
However, under the Double Taxation Avoidance Agreement (DTAA) between India and the US, the 25% tax withheld in the US can be claimed as a foreign tax credit when filing your Indian tax return, helping to avoid double taxation.
➡️ Pro tip: Keep Form 1042-S or a similar dividend statement handy to show US tax paid, especially for any US stock investment from India.
3. Currency Gains or Losses – Don’t Overlook the Rupee
You might make or lose money due to INR–USD exchange rate fluctuations, even if your stock price remains the same. These currency gains or losses impact your net return but are not taxed independently under Indian tax laws.
For tax calculation, both your investment and withdrawal amounts must be converted into INR using the prescribed exchange rates on those dates. So, always track the currency conversion rates and bank charges associated with foreign remittances made for your US stock investment from India.
4. Remittance Under LRS – You’re Still Being Tracked
All outbound investments from India must comply with the Liberalized Remittance Scheme (LRS) regulated by the Reserve Bank of India (RBI). Under this, Indian residents can send up to USD 250,000 per financial year for foreign investments.
Starting July 1, 2023, a Tax Collected at Source (TCS) of 20% applies to most overseas remittances for investments. However:
- If remittance is below ₹7 lakh, TCS may not be applicable.
- You can claim the TCS back when filing your income tax return.
Although TCS is not a direct tax on US stocks in India, it affects liquidity and should be factored into your capital allocation strategy for any US stock investment from India.
5. Mandatory Tax Disclosures – Stay Transparent
If you’re making a US stock investment from India, you are legally required to disclose:
- Foreign bank accounts
- US brokerage accounts
- Any capital gains or dividend income earned abroad
These disclosures are part of Schedule FA (Foreign Assets) in your Indian Income Tax Return if you are filing ITR-2 or ITR-3. Non-disclosure may attract penalties under the Black Money Act.
6. Filing Deadlines and Reporting Accuracy
While the US tax year follows the calendar year (Jan–Dec), India’s tax year is April–March. You’ll need to align your reporting with Indian tax laws, converting all foreign gains and income into INR.
Be mindful of:
- Using the right ITR form
- Including dividend income with appropriate documentation of US tax withheld, such as Form 1042-S or brokerage statements
- Declaring any interest earned on overseas brokerage cash balances
Accurate reporting is crucial to remain compliant with tax on US stocks in India.
7. Tax Planning Tips for Indian US Stock Investors
- Track your holding period: It affects whether you pay STCG or LTCG.
- Invest for dividends smartly: Some US stocks offer dividends, but you’ll lose 25% to US taxes — plan accordingly.
- File early: If you have multiple transactions, give yourself time to gather records and consult a tax advisor.
- Reinvest mindfully: While reinvesting profits is beneficial, maintain a detailed ledger of the original investment cost and resulting gains for accurate tax reporting under Indian law.
Conclusion
Making a US stock investment from India is a powerful way to access global markets, but taxes shouldn’t be an afterthought. Understanding the tax on US stocks in India—whether on dividends, capital gains, or overseas remittances—is essential to staying compliant and maximizing your post-tax returns.
As with all financial decisions, knowledge and record-keeping are your best allies. Stay updated on rules, work with a tax advisor if needed, and keep every document related to your overseas transactions. This way, your global investment journey stays both profitable and hassle-free.