Introduction
Many investors seek clarity on tax on US stocks in India, especially as global investing grows in popularity. While buying US equities is simple, understanding how dividends and capital gains are taxed ensures compliance and prevents surprises during tax filing. Learning the correct rules helps investors plan better, manage returns wisely, and stay fully compliant with Indian tax laws.
How Taxation Works for US Investments
When an Indian investor buys US stocks, two countries may be involved in taxation: the United States, where the stock is listed, and India, where the investor is a tax resident.
Understanding how both systems interact is essential for anyone researching tax on US stocks in India.
1. Dividend Taxation
Tax Deducted in the US
The US government deducts 25% tax at source on dividends paid to foreign investors. The remaining 75% is transferred to your account.
Example:
If a company pays a $100 dividend, you receive $75 after tax deduction.
Tax Treatment in India
Since dividends are taxable in India as per your income slab, you must declare them while filing taxes. However, you can claim credit for tax already paid in the US under the India–US Double Taxation Avoidance Agreement (DTAA).
This ensures you avoid double taxation.
2. Capital Gains Taxation
Capital gains tax is applied only in India, not in the US. This makes it important to understand the Indian tax rules clearly.
Short-Term Capital Gains (STCG)
If shares are sold within 24 months, the gains are considered short-term.
STCG is added to your total taxable income and taxed as per your slab.
Long-Term Capital Gains (LTCG)
If the holding period is 24 months or more, the gains are considered long-term.
LTCG tax is charged at 20% with indexation benefit.
Knowing this helps identify the correct tax on US stocks in India based on the holding period.
3. Currency Gains and Taxability
Currency fluctuations affect your final capital gain. The tax authorities consider gains in INR, not USD.
Example:
- You invested when USD = ₹75
- You sold when USD = ₹82
The currency movement may increase your taxable gain even if the USD price remained flat.
Tax Filing Requirements
To accurately comply with tax on US stocks in India, investors must:
1. Declare Foreign Assets in ITR
If you hold US stocks, you must declare them under the “Foreign Assets” schedule.
2. Report Foreign Dividends Separately
Dividends must be reported in the “Income from Other Sources” section.
3. Claim DTAA Benefits
Tax paid abroad must be declared, and credit can be claimed.
4. Maintain Records
Keep:
- Broker statements
- Dividend reports
- Forex conversion records
- Transaction history
Accurate documentation supports seamless filing.
Examples to Understand Taxation Clearly
Understanding tax on US stocks in India becomes simpler through real-world scenarios.
Scenario 1: Dividend Example
- Dividend announced: $200
- US tax deducted at 25% = $50
- Amount received: $150
You must declare $200 as income in India but claim credit for the $50 paid abroad.
Scenario 2: Short-Term Capital Gain
- Buy price: $500
- Sell price: $600
- Holding: 10 months
STCG = $100 gain → converted to INR → taxed per slab.
Scenario 3: Long-Term Capital Gain
- Buy price: $1,000
- Sell price: $1,500
- Holding period: 26 months
LTCG = $500 gain → taxed at 20% with indexation.
Why Understanding Taxation Matters
Knowing the correct tax on US stocks in India helps investors:
1. Avoid penalties
Proper reporting prevents compliance issues.
2. Improve financial planning
Clear tax knowledge helps calculate real returns.
3. Manage long-term portfolios better
Knowing tax impact influences holding decisions.
Common Misconceptions About US Stock Taxation
Misconception 1: “US also taxes capital gains.”
False — India alone taxes capital gains for residents.
Misconception 2: “You get double taxed.”
Incorrect — DTAA prevents this.
Misconception 3: “Currency strength doesn’t affect taxes.”
It does — all calculations occur in INR.
Conclusion
Understanding tax on US stocks in India is essential for anyone investing globally. With clear rules for dividends, capital gains, and foreign asset reporting, Indian investors can confidently manage their global portfolios while staying compliant. By keeping records, reporting correctly, and using DTAA benefits, global investing becomes smoother and more financially efficient.
FAQ
1. Do Indians pay tax twice on US dividends?
No, DTAA prevents double taxation.
2. Is capital gain taxed in the US for Indian residents?
No, only in India.
3. Do I need to declare US stocks in my ITR?
Yes, under the Foreign Assets schedule.
