Introduction
When Indian investors start exploring US stock investment from India, one crucial topic often overlooked is taxation. Without understanding the tax implications on international investments, you could face unexpected liabilities — or worse, double taxation.
This article explains the essential tax rules every Indian must know before investing in US stocks, with a focus on tax on US stocks in India and how to stay compliant.
1. Tax on Dividends Received from US Stocks
Dividends paid by US companies to foreign investors (including Indians) are subject to a 30% withholding tax as per US law. However, due to the India–US Double Taxation Avoidance Agreement (DTAA), this rate is reduced to 25% for Indian residents.
For example, if a US stock pays a $100 dividend, you’ll receive $75, as $25 is withheld. This tax on US stocks in India is deducted at source and cannot be avoided. But you can claim credit in your Indian tax return for the amount withheld in the US.
2. Tax on Capital Gains in India
Unlike dividends, capital gains from US stock investment from India are not taxed in the US for Indian residents. Instead, the entire capital gain is taxed in India based on the holding period:
- Short-term capital gains (STCG): If the holding period is less than 24 months, gains are taxed as per your income tax slab.
- Long-term capital gains (LTCG): If held for 24 months or more, gains are taxed at 20% with indexation benefits.
So, for Indian tax purposes, it’s important to keep records of your purchase and sale dates, along with currency exchange rates on both dates for accurate reporting of tax on US stocks in India.
3. Currency Conversion and Capital Gains
One tricky area in US stock investment from India is the calculation of gains in INR. Since you’re investing and selling in USD, but filing taxes in INR, you must use the RBI reference rate on the purchase and sale dates to calculate capital gains.
This adds an extra layer of complexity — not just price appreciation, but also exchange rate movements affect your final gains in rupee terms.
4. Reporting in Indian Tax Returns
Under Indian tax laws, all foreign assets — including US stock investment from India — must be disclosed when filing the ITR-2 form (used for capital gains and foreign income). Here’s what you should report:
- Bank accounts used for international transactions
- Details of the foreign stocks held
- Income earned (dividends/capital gains)
- TDS (withholding tax) on US dividends
Failure to disclose these accurately could lead to penalties under the Black Money Act, even if the investments were legal. Proper reporting is essential for managing tax on US stocks in India.
5. TCS on Foreign Remittance
Under the Liberalized Remittance Scheme (LRS), Indians can remit up to $250,000 per financial year abroad. But starting from July 1, 2023, a 20% Tax Collected at Source (TCS) applies to foreign remittances used for investments, unless routed through a specific educational or medical channel.
However, this TCS is not a final tax. You can claim it as a refund or adjust it against your total tax liability while filing your returns. It’s still a cash flow consideration when you’re starting with US stock investment from India.
6. No Need for a PAN in the US
You don’t need a US Social Security Number (SSN) or a US PAN equivalent to invest. However, you may receive a Form 1042-S from the US brokerage annually, which shows your dividend income and taxes withheld.
This form can be useful when claiming DTAA credit in India to avoid double taxation on US stocks in India.
Conclusion
Understanding the tax on US stocks in India is vital for long-term planning and compliance. While US stock investment from India opens new growth opportunities, tax planning ensures those gains aren’t lost to poor documentation or compliance gaps.
Always keep records, disclose foreign assets properly, and claim DTAA benefits wherever applicable. If needed, consult a tax advisor familiar with cross-border taxation. Smart investing isn’t just about returns — it’s also about staying legally and financially protected.
