Tax Implications of Gains on U.S. Stock Investments for Indian Residents: A Guide to Filing Income Tax Returns & reporting foreign portfolio investments for Indians

Taxation on Capital Gains on Sale of US stocks for Indian residents: 

The meaning of “Capital Gains on sale of US stocks for Indian residents” is when one sells a US Stock and makes a profit. For example, let’s take an Indian resident who had purchased $500 worth of Apple shares from India on November 16th 2022 at a price per share of $149. She later sold the same on 18th November, 2024, when the price per share of Apple had risen to $228. This would result in a total sale value of $765 and gain (or profit) of $265. It is this gain which is taxable under the Indian Tax Laws as a capital gain. 

It must be noted that taxes on capital gains from US stocks for Indian residents are only taxed in India and not in the US. This is because of the taxation treaty between the two countries. The India-US Double Taxation Avoidance Agreement (DTAA) helps Indian investors avoid double taxation and hence pay taxes only in India. 

Also read about: How to invest in US stocks from India

Types of Capital Gains on sale of US stocks for Indian residents: 

There are two types of capital gains that an Indian resident can experience after selling their US stocks which depend on the holding period of the stock. In other words, a holding period is the time between the purchase of a stock and its sale. 

First is the Tax on Long Term Capital Gains (LTCG). Gains from stocks that are held for more than 24 months are called long term capital gains. In the Apple example above, since the shares were purchased on 16th November 2022 and sold on 18th November 2024, the holding period for the investor is more than 24 months. Therefore, the $228 gain will be classified as a LTCG and will attract a tax of 12.5%. It must be noted that the LTCG before the budget 2024 was 20% and post the budget reduced to 12.5%, thereby making the taxation on capital gains favorable for Indians investing directly in US stocks. 

Second is the Tax on Short Term Capital Gains (STCG). These are the gains from stocks that are held for less than 24 months and are hence called short term capital gains. In the Apple example above, if the shares purchased on 16th November 2022 were sold on 1st December 2023, then the investor’s holding period for this Apple share is less than 24 months. Therefore, this will then be classified as a short term gain or STCG. Tax on these short term gains will need to be paid as per the Indian resident’s income tax slab. For example : if one’s income tax slab is at 20%, then then tax on STCG will also be 20%. 

Table below shows a summary of the taxation on capitals gains made on US stocks invested from India :  

Calculating the Indian Rupee equivalent for computing taxation: 

Indian residents benefit from the Dollar's appreciation against the Rupee. However, capital gains are calculated in Dollars and then converted to Rupees using the USD-INR exchange rate as of the last day of the month before the sale. In our above example of gains from Apple shares sold in November, the $265 is converted to the exchange rate as on 31st October 2024 ($1 = INR 84.09). 266 x 84.09 = Rs. 22367.94. Tax will hence need to be paid on this rupee value. 

This exchange is the telegraphic transfer buying rate (TT buying rate). This rate is published by the State Bank of India (SBI) and shows how much a bank will pay for buying foreign currency like USD. 
 

Taxation on Dividends on US stocks for Indian residents : 

Dividends paid on the US stocks invested from India have a withholding tax of 25%. This means that if an Indian investor receives a dividend of $100, then there will be a withholding tax in the US of 25% on this $100. The Indian investor would get $75. However this $25 can be off set against your Indian tax liability. For computing taxation the USD-INR exchange rate will be applicable from the last day of the month prior to receiving the dividend. For example, if one received a dividend in July, then the exchange rate for USD-INR applicable as of June 30th.

Capital losses on the sale of US stocks and implication of taxes thereof :

In case an Indian investor experiences losses from the sale of US stocks then the same can be offset. ⁠Short term capital losses from US stocks can be offset with short term and long term gains. On the other hand long term losses can be offset with long term gains. In this case the asset class does not matter. Therefore, one can offset short term loss from US stocks against gains made in US equity or India equity or even real estate or vice versa. 

If you have invested in US stocks via INDmoney, how to access Tax reports on the app? 

To find your tax reports on the INDmoney app, go to your “Wallet Bal.” on your US Stocks Account. Scroll down to find the “Tax Documents” tab.

Alternatively, you can access your tax report in the Profile section. Simply click on your profile picture, scroll down, and select ‘Tax Report’. Your tax report will be available under the US Stocks section.

You will get the following reports required to file taxes in India for your US stock investments?

Capital Gains Statement:

Reports from your broker reflecting profits earned from the sale of US stocks.

 

Form 67:

To claim your withheld tax i.e. the tax withheld on dividends. Ensure your foreign tax credit and income are accurately reported here so you can claim credit.

 

Schedule FSI:

To disclose all income coming from outside India i.e Foreign Source Income. This is applicable for residents in India.

Schedule TR: 

To provide a summary of Tax Relief being claimed in India for taxes being paid outside India. For example, the 25% withheld tax on your US Stocks dividends should be filed here for tax relief

Schedule FA:

You need to disclose all foreign assets in this section. So for US Stocks, regardless of your capital gains or losses, you must disclose that you hold US Stocks.

Reporting of US stock investments in the ITR (Income Tax Returns) is compulsory,  even if an investor has made no gains or losses. 

Even if an Indian resident investor in US stocks has not earned any gains from US stocks, it is still mandatory to report them in their  income tax returns. Indian residents must disclose all foreign assets under Schedule FA of their ITR. This includes the name of the stock, the number of shares you own, and their value in INR. Reporting the assets, even without gains, is a legal requirement under Indian tax laws to ensure transparency.

Income Tax Return (ITR) form  to be used to report US stock investments?

To report  gains and holding of US stocks, Indian resident tax payers must choose the correct ITR form. If one’s income comes from salary, dividends, or capital gains (profit from selling stocks), one should form ITR-2. However, if one has income from a business or profession, the individual Indian Tax payer must file ITR-3. Both forms include a section called Schedule FA (Foreign Assets), where one needs to disclose details of one’s US stocks, such as the number of shares you hold and their value. Filing the right form ensures you comply with Indian tax regulations.

Capital gains from selling US stocks are reported under ‘Foreign Source Income (Schedule FSI)’ in your ITR. Short-term capital gains (from stocks held for less than 24 months) are taxed at your applicable income slab rate, while long-term capital gains (from stocks held for 24 months or more) are taxed at 12.5%. Use the correct exchange rates to convert sale and purchase amounts to INR, and ensure all details are accurately recorded in your ITR.

Does one need to include currency conversion details in my ITR?

The asset values must be reported in INR. Hence, to ensure consistency across all reported values and to perform currency conversions, one needs to use the SBI TT buying rate. This keeps one’s tax filing compliant with Indian regulations.

Claiming a foreign tax credit for taxes paid on US dividends?

When US companies pay dividends, they deduct a 25% withholding tax on one’s dividend payout. To avoid paying this tax again in India, you can claim a credit under the Double Taxation Avoidance Agreement (DTAA). This requires filing Form 67 along with Schedule TR (Tax Relief) in your ITR, which adjusts your Indian tax liability by accounting for the tax already paid in the US. It’s important to submit Form 67 before filing your ITR to ensure the credit is processed correctly.

What happens if I don’t report or miss my US stock investments in my ITR?

Failing to report your US stock investments can result in serious penalties. As an Indian resident, you are legally required to disclose all foreign assets under Schedule FA. Non-disclosure can lead to fines or prosecution under the Black Money Act. To avoid these consequences, ensure you report all your foreign investments accurately.

How should I report dividend income from US stocks in my ITR?

Dividend income from US stocks should be reported under ‘Income from Other Sources (Schedule OS)’ in your ITR. Before doing so, convert the dividend amount into INR using the SBI TT buying rate from the last day of the previous month. This ensures that your income is correctly reported and taxed according to Indian regulations.

There are two ways in which you can view your US stock dividends on the INDmoney app:

From your US Stocks account on INDmoney, click on “My Stocks” and then “View” to open your US Stocks dividend Report. 

You can go to the “Explore” tab on your US Stocks account and look for the “US Dividends” banner. This provides a calendar view of your total dividend payouts for each financial year. You can switch to a monthly view by clicking on the “Monthly” icon too.

See more details about Dividend calendar here 

Are dividends from US stocks taxed twice in India?

No, dividends from US stocks are not taxed twice, thanks to the India-US DTAA. While the US deducts a 25% withholding tax, you can claim this amount as a credit in India by filing Form 67 and Schedule TR in your ITR . This adjustment ensures you are not taxed again in India for the same income, making the process fair and straightforward.

What is TCS?

TCS is Tax Collected at Source while making remittances from India to US. There is no TCS for remittances made up to Rs.7 lakhs in a financial year, while there is a 20% TCS on remittances made above Rs.7 lacs in a financial year. 

Read more about TCS here

Process for How do I file ITR for returns from US stock investments?

Accurately reporting your US stock investments in India requires selecting the correct ITR form and providing detailed information about dividends and capital gains. You can do this in seven easy steps: