When an Indian investor thinks about buying international stocks, one of the first concerns on his mind is the tax on selling foreign shares in India.
Understanding the charges and taxes are important to ensure that the net returns are worth the effort.
Today, we are going to talk about the tax on US stocks in India in detail to offer a clear perspective and debunk any myths surrounding it. Read On to know more about capital gains tax on shares sold outside India.
What are the Tax Implications?
There are two types of tax on stock trading in US that you must keep in mind:
- Tax on Dividends
- Capital Gains Tax
1. Tax on Dividends
When calculating the tax on US stocks in India, you have to take into account dividends earned from US stocks as well. This amount is taxable at the rate of flat 25%. Hence, if the company declares a dividend of $100, then you will receive $75. This is lower than the standard tax rate for foreign investors in the US due to the tax treaty between India and the USA.
Further, the dividend received as cash or reinvested is also taxed in India at the income tax slabs applicable by adding it to your current income. However, India and the USA have a Double Taxation Avoidance Agreement (DTAA) that allows you to use the tax withheld in the US to offset the tax liability in India.
Therefore, if the company had declared a $100 dividend pay-out, then you would receive $75. However, the tax liability in India would be calculated on $100. Let’s say that the tax liability in India is $30. Since you have already paid $25 in the US, you will have to pay only $5 in India. Remember, this is a representational example. The real-life calculation will need more work as you will have to add $100 to your taxable income and assess your tax liability based on the slab applicable to you.
2. Capital Gains Tax
Capital gains tax is another type of tax on stock trading in US. When you earn capital gains, there is no tax applicable in the US. Hence, if you buy shares worth say $500 and sell them for say $800, then there will be no tax liability in the US on the capital gain of $300. However, you will be liable to pay taxes on this gain in India.
Calculating Capital Gains on Foreign Shares:
As we know, in India, capital gains are taxed based on two categories:
- Long-Term Capital Gains (LTCG) – The magic number to remember here is 24 months. If you have held the stocks for more than 24 months before selling them and earning capital gains, then you will be liable to pay a capital gains tax at the rate of 20% plus all applicable fees and surcharges.
- Short-Term Capital Gains (STCG) – On the other hand, if you have held stocks for less than 24 months before selling them and earning capital gains, then the said gains will be added to your taxable income and taxed as per the income-tax slab applicable to you.
Examples
You buy shares worth $500 and sell them for $800 after 30 months. Hence, you earn long-term capital gains of $300. The tax liability will be $60 plus cess and surcharges.
You buy shares worth $500 and sell them for $800 after 20 months. Hence, you earn short-term capital gains of $300. This will be added to your current income and taxed based on the applicable income-tax slab.
The simplest way to understand the tax on selling US stocks in India is to divide it between the US tax liability and Indian tax liability. The tax on your current taxable income (including dividend and short-term capital gains) will be calculated using the tax slabs based on the prevalent income-tax rates.
FAQs
The long-term capital gains US stocks tax rate for international investors, including Indian residents, is typically 15% or 20%, depending on the person's income level. Dividend Tax: If the US equities you own pay dividends, the US and India may tax your income.
Can an Indian resident invest in US stocks? ›
Yes, Indians can invest in the US stock market. There is more than one way to buy and hold US stocks in your portfolio. Direct equities, ETFs, and mutual funds are just one of the few popular options. You can invest in US stocks in two ways from India – indirect and direct.
What is the TDS for investing in US stocks? ›
Your US Stocks dividend (if issued by the company against the stocks you hold on the date of issue) will be credited back to your US Stocks a/c after deducting the applicable 25% TDS.
What are disadvantages of investing in US stocks from India? ›
Cons of investing in the US markets
Since you can only invest in the US markets in dollars, you have currency risk at both legs of conversion. More the volatility in currencies, greater is the risk you run on currency fluctuations. People often wonder where is the economic or geopolitical risk in the US.
Are US stocks taxable in India? ›
Indian investors are subject to a flat tax rate of 25% on dividends from US stocks, with the tax withheld by US companies. Reinvested dividends are added to the investor's income and taxed accordingly. Capital gains from selling stocks are taxed as either long-term or short-term gains.
How much tax do I have to pay on stock gains in India? ›
Long-Term Capital Gains (LTCG)
| Particulars | Tax rate |
|---|
| STT-paid sales of listed shares on recognized stock exchanges and MFs | 10% on amounts over Rs 1 lakh |
| STT is paid on the sale of shares, bonds, debentures, and other listed securities. | 10% |
| Sale of debt-oriented MFs | With indexation - 20% Without indexation - 10% |
Mar 25, 2024
What is the rate of TDS? TDS is to be deducted at the rate of 2 percent on payments made to the supplier of taxable goods and/or services, where the total value of such supply, under an individual contract, exceeds Two Lakh Fifty Thousand Rupees.
What is the TDS 1% rule? ›
Under the income tax laws, any 'person' responsible for paying money to a resident individual to buy a house or any other immovable property (other than agricultural land), shall deduct tax at the time of making payment. TDS @ 1% must be deducted if the payment amount is Rs 50 lakh or more.
How to avoid 1% TDS? ›
Submit proof of investments to avoid higher TDS on salaries
However in the last three months of the financial year, the finance department sends emails to employees asking for proof of investments. Proposed declaration save you from TDS typically till first 3 quarters of the financial year which is till December.
Is it better to invest in the Indian stock market or the US stock market? ›
While the US market may provide broader international exposure, the Indian market's potential for high returns and its resilience, even during global downturns, should not be underestimated.
The US offers stability, a mature market, and transparent legal systems, making it an attractive option for risk-averse investors. On the other hand, India presents exciting growth prospects, but the regulatory landscape and potential volatility require a more strategic and informed approach.
How does the US market affect the Indian market? ›
Impact of tariffs: When the US decides to ramp up trade tariffs, it can hurt Indian companies that export goods there, leading to reduced profits for these businesses. This situation could result in a drop in stock market values in both countries, as investors react to the potential decrease in trade and earnings.
Do I pay tax on US stocks? ›
Under the Treaty, a 15% withholding tax generally applies to U.S. dividends you receive from U.S. corporations. This will generally apply to dividends you receive on U.S. common and preferred shares.
How are foreign stocks taxed in the US? ›
When Americans buy stocks or bonds from foreign-based companies, any investment income (interest, dividends) and capital gains are subject to U.S. income tax and taxes levied by the company's home country.
What is the DTAA tax rate between India and USA? ›
Dividend Under DTAA between USA and India
15% of the gross amount if the dividend is received by a company having at least 10% of the company's shares. 25% of the gross amount in any other cases.
What is the DTAA between India and USA? ›
The primary objectives of the DTAA are to avoid double taxation on the same income, prevent tax evasion, and promote cross-border investments by clarifying taxing rights between India and the US on various types of income.
