• Notification Date: 19-11-2021
• Notification No: 43/2021-22

Money gained from US Stocks? Check rules to report it in Income Tax Return and claim credit

Income Tax on Gains from the US stocks in India says: It is now possible for investors living in India to own stocks of some of the largest companies listed on the US stock exchange markets. There are several online platforms that facilitate investment in US stocks or Exchange Traded funds (ETFs) for investors in India.

The US stocks offer huge earning opportunities and that’s why interest in the same among Indian retail investors has increased significantly.. Investing in the US stock markets also offers Indian investors an opportunity to diversify their domestic portfolio by investing in some of the world’s top tech, pharmaceutical, manufacturing and other companies.

However, just like returns from investment in domestic stocks are required to be reported in the Income Tax in India, it is also significant to report gains from the US stock investments. However, the rules are a bit different. Lets have a glance at these:

Shares listed in the foreign market are considered unlisted shares in India. There is no capital gains tax in the US. Hence, all the gains from investment in US stocks will be credited to your account. So you can’t claim the tax credit on capital gains as the US doesn’t levy tax on such gains.

However, in India, you have to pay tax on capital gains.

According to Abhishek Soni, Co-founder and CEO, Tax2win.in, Indian taxpayers need to report such gains from US stocks as short-term gain or long-term gain from unlisted shares on the basis of the period of holding.

“If such shares are sold within 24 months then it will be reported as a short-term gain and it is taxed as per the normal slab rate. If it is sold after 24 months then it will be reported as long-term capital gain and taxed at 20% (plus surcharge and health and education cess). Indexation benefit will be available in case of Long term capital gains,” Soni told FE Online.

Tax on Dividend Income

The US taxes dividend earned in the country at the rate of 25%.

So for example, if you earn $1000 as dividend, then only $750 will be credited to your account after deducting $250 as dividend tax. However, while filing the Income Tax Return in India, you can show the entire dividend (i.e. Rs 1000) after converting it into rupees and pay tax on the amount as per your slab rate. And you can also claim the credit of $250 already paid as tax in the US.

What if tax is already paid in the US?

Since the stocks are listed in the US, tax rules of that country also come into play for Indian investors. However, Double Taxation Avoidance Agreement (DTAA) helps in ensuring that you do not have to pay tax twice on the same income.

“Resident individuals can claim the benefit of taxes paid outside India as per the provisions of the Double Tax Avoidance Agreement. Taxpayers need to disclose the gain/loss in the ITR accordingly,” said Soni.