Tax implications for Indians on US Stock Investments
As an Indian investor, Long Term Capital Gain on US shares are taxable at 20%. Dividends on US Stock investments count as income and will be subject to a 25% tax in the US according to the India-US DTAA.
There are a myriad of questions that come to the minds of Indian investors who invest in the Foreign or US stocks. When an Indian investor thinks about buying international stocks, one of the first concerns on his mind is the tax on selling US shares in India. This article picks up all these questions and answers them one at a time.
Q1 How much tax I need to pay on US investment?
When you book profits on US investments (amd hopefully you do! 😄 ), this profit is taxable in India and not in the US. The applicable tax is based on how long you hold your investment:
- Long-Term Capital Gains - If the shares are held for more than 24 months and the ETFs are held for more than 36 months, the gain from these investments will be taxed at a long-term capital gains tax rate of 20%.
- Short Term Capital Gains - If the shares are held for less than 24 months and the ETFs are held for less than 36 months, the gain from these investments will be treated as regular income and will be taxed according to your income tax slabs.
Q2 How are US stocks' dividends taxed?
Dividends over US Stocks Investments are taxed at source at a flat rate of 25%. The company deducts 25% of the dividend being allotted and distributes the remaining dividend to the users.
Q3 What is the DTAA tax rate between India and USA?
Double Taxation Avoidance Agreement (DTAA) between the US and India allows taxpayers to deduct income tax already paid in the US. You are eligible to use the 25% tax you already paid in the US as a foreign tax credit to reduce the amount of income tax you need to pay in India. We recommend you work with a Chartered Accountant when you are filing your IT returns.
Q4 How do I save taxes on US stocks?
The Double Tax Avoidance Agreement (DTAA) allows for the adjustment of US withholding tax against any tax liability in India, providing relief to Indian investors. Let's say you invest in Tesla stocks, for which you receive a dividend income of $1,000. The company retains 25% or $250 out of this amount as tax.
Like learning through video? Watch this guide from INDMoney
Q5 What is LRS and why is it important?
The LRS full form is Liberalised Remittance Scheme. It is a foreign exchange policy initiative introduced by the Reserve Bank of India in 2004. Liberalized Remittance Scheme (LRS) facilitates resident individuals to remit up to USD 2,50,000 or its equivalent abroad per Financial Year (April-March) for permitted current or capital account transactions or combination of both.
Q6 What is Tax collected at source and how does it impact investments in US stocks?
A Tax Collected at Source (TCS) of 20% will be levied on foreign remittances exceeding Rs 7 lakh in a financial year. This alteration in the tax regime will influence those who invest in international stocks.
If your remittance under LRS is less than Rs. 7 lakh in a year, the TCS will be:
- NIL for US stocks investments. For example, if you're remitting Rs. 5 lakh for US stocks investments, you'll pay Zero TCS.
If your remittance under LRS exceeds Rs. 7 lakh in a year, the TCS will be
- 20% for US stocks investments. For example, if you're remitting Rs. 9 lakh for US stocks investments, you'll pay TCS of Rs. 40,000 on the Rs. 2 lakh that exceeds the Rs. 7 lakh limit.
Summary
Understanding the tax implications on US Stocks is important to have realistic expectations from your investment. Many investors tend to stay away from international stocks since they are not aware of the tax implications. But don't worry, we hope this article helps you become confident.
Happy Investing! 😄
