Tax on US Stocks for Indian Residents | Dividend & LTCG

What are the tax implications for Indian residents investing in US stocks?

If you invest in US stocks while residing in India, you should be aware of tax rules in both countries, governed by the India–US DTAA, the Income-tax Act, 1961, and applicable US withholding rules.

1. Tax on Dividends:

Dividends paid by US companies are taxed at 30% in the US.
Reduced rate under India–US DTAA: 25%, provided the investor has submitted Form W-8BEN to the broker.

This tax is withheld at source, meaning it is deducted before you receive the dividend.

You can claim foreign tax credit for this amount when filing your Indian income tax return, so you don’t pay tax on the same income twice.
Indian Tax Treatment: Dividends from US stocks are fully taxable at the investor’s applicable slab rate, plus cess and surcharge in India as “Income from Other Sources”.
Foreign Tax Credit (FTC) can be claimed in India for the US tax withheld:
- Credit is restricted to the lower of:
- Tax paid in the US, or
- Indian tax payable on such dividend income
FTC must be claimed using Form 67 before filing the ITR. This prevents double taxation, but does not eliminate Indian tax if slab rates exceed the US withholding rate.

2. Tax on Capital Gains:

When you sell US stocks, capital gains are taxed only in India, not in the US. US stocks in India are considered as unlisted securities for tax treatment.

Indian Tax treatment depends on your holding period:
Held for less than 24 months: Short-term capital gains, taxed as per your income tax slab rate.
Held for 24 months or more: Long-term capital gains, taxed at 12.5% with indexation benefit.

3. Reporting Requirements:

You must disclose your foreign assets and income in your Indian income tax return (Schedule FA).
All investments abroad should be reported accurately to avoid penalties.
To claim foreign tax credit file Form 67.
Non-disclosure can attract severe penalties under the Black Money Act, even if no tax is payable

Example:

If you earned $100 in dividends, $30 is withheld in the US. You can claim credit for this when reporting income in India.

If you later sell shares at a profit, you pay capital gains tax in India based on the holding period.

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