What are the tax implications on investing in US stocks and ETFs as an Indian resident?

What are the tax implications on investing in US stocks and ETFs as an Indian resident?

For investors in India, there are two types of taxation events when you have returns from your investments in US stocks:


Taxes on investment gains: You will be taxed in India for this gain, but will not be taxed in the US. The amount of taxes you have to pay in India depends on how long you hold the investment.


To qualify as a long-term capital asset, the shares of the foreign company must be held for at least 24 months. The gain will then be taxed at a long-term capital gains tax rate of 12.5% (plus applicable surcharge and cess fees), without indexation benefit.


If you hold the shares for less than 24 months, the gain qualifies as a short-term capital gain and will be taxed as normal income in India. The tax rate is based on the tax bracket that you fall under, according to your income.


Taxes on dividends: Unlike investment gains, dividends will be taxed in the US at a flat rate of 25%. This means that the company paying the dividend will subtract the 25% taxes before distributing the remaining 75% to the investor. For example, if Microsoft gives an investor 100 USD in dividends, it will withhold 25 USD as tax and give the investor the post-tax dividends of 75 USD. Subsequently, this pre-tax dividend is included as taxable income in India (as normal income).


Fortunately, the US and India have a Double Taxation Avoidance Agreement (DTAA), which allows taxpayers to offset income tax already paid in the US. The 25% tax you already paid in the US is made available as a Foreign Tax Credit and can be used to offset your income tax payable in India.


At the end of the fiscal year, we provide a comprehensive transaction summary along with the necessary tax documents as per Indian regulations on Tax module. Our proprietary Tax module simplifies your tax reporting by calculating taxes in INR.


To learn more about the tax implications of US stock investments for Indian investors, you can check out our article on Tax implications of investing in US stocks. We would also recommend to consult your tax advisor or CA for understanding tax implications.