Investing in US stocks has become common among Indian investors. Global platforms make it easy to buy shares of Apple, Google, Tesla, or ETFs listed on NASDAQ and NYSE. But while returns can be attractive, taxation is where most investors get confused.
The good news? With the right understanding, you can avoid double taxation and legally reduce your tax outgo on US stock investments.
Let’s break it down in a simple, practical way.
Are US Stocks Taxable in India?
Yes. If you are an Indian resident, your global income is taxable in India. This includes:
- Capital gains from US stocks
- Dividend income from US companies
However, India and the US have a Double Taxation Avoidance Agreement (DTAA), which prevents you from paying tax twice on the same income.
How Capital Gains on US Stocks Are Taxed
Unlike Indian equities, US stocks do not enjoy concessional tax rates.
Short-Term Capital Gains (STCG)
- If sold within 24 months
- Taxed as per your income tax slab
- Can go up to 30% + surcharge + cess
Long-Term Capital Gains (LTCG)
- If held for more than 24 months
- Taxed at 20% with indexation benefit
- Indexation reduces taxable gains significantly over time
💡 Tax-saving tip: Long-term holding plus indexation is one of the most effective ways to reduce tax on US stocks.
Taxation on Dividends from US Stocks
US companies usually deduct 25% tax at source on dividends paid to Indian investors.
But here’s where DTAA helps:
- Under India–US DTAA, dividend tax is capped at 25%
- The tax deducted in the US can be claimed as Foreign Tax Credit (FTC) in India
👉 This means you don’t pay tax again in India on the same dividend income.
How to Claim Foreign Tax Credit (FTC)
This is the most important step to save tax.
What You Need
- Form 1042-S (provided by your US broker)
- Proof of tax deducted in the US
- Form 67 (to be filed online before ITR submission)
How It Helps
If the US deducted ₹25,000 as tax on dividends:
- You can reduce your Indian tax liability by ₹25,000
- No double taxation
Set Off Losses Smartly
Capital losses from US stocks can help reduce your tax burden:
- Short-term losses can be set off against:
- Short-term gains
- Long-term gains
- Long-term losses can be set off only against:
- Long-term gains
Unused losses can be carried forward for 8 years, provided you file your return on time.
Choose Growth ETFs Over Dividend Stocks
If your goal is tax efficiency:
- Prefer growth-oriented US ETFs
- Avoid frequent dividend-paying stocks
Why?
- Dividends are taxed every year
- Capital gains tax can be deferred until you sell
This allows better compounding and lower annual tax outgo.
Currency Conversion & Tax Impact
Gains are calculated in INR, not USD.
- Buy value = USD price × RBI reference rate on purchase date
- Sell value = USD price × RBI rate on sale date
💡 Even if a stock price remains flat in USD, rupee depreciation can increase taxable gains.
Disclosure Is Mandatory
Indian residents must disclose:
- US stock holdings under Schedule FA
- Capital gains under Schedule CG
- Dividend income under Income from Other Sources
Non-disclosure can attract penalties, even if no tax is payable.
Key Takeaways
- Hold US stocks for long term to get indexation benefits
- Always claim Foreign Tax Credit
- Use loss set-off rules effectively
- Prefer growth over dividends for tax efficiency
- Disclose foreign assets properly to stay compliant
FAQs:
1. Do Indian residents pay tax in both India and the US?
No. Thanks to DTAA, tax paid in the US can be claimed as a credit in India.
2. Is TDS deducted on US stock dividends?
Yes, usually at 25%, which can be adjusted using Foreign Tax Credit.
3. Is LTCG on US stocks tax-free?
No. LTCG is taxed at 20% with indexation.
4. Can I reinvest dividends to save tax?
Reinvestment does not avoid tax. Dividends are taxable when received.
5. Is Schedule FA compulsory for small investments?
Yes. Any foreign asset, regardless of value, must be disclosed.
- PAN Card
- Cancelled Cheque
- Latest 6 month Bank Statement (Only for Derivatives Trading)
