Investing in US stocks from India can provide Indian investors with exposure to global markets and the opportunity to diversify their investment portfolios. However, it’s essential to understand the tax implications associated with investing in US stocks as an Indian resident. This guide aims to provide an overview of the key tax considerations and obligations when investing in US stocks from India. You need to know How to Invest in us stocks from India?
Tax Residency and Double Taxation Avoidance Agreement (DTAA):
As an Indian investor, your tax liability is determined by your tax residency status. If you are a resident of India, you are subject to taxation in India on your global income, including any income generated from US stocks. India has signed a DTAA with the United States to prevent double taxation. The DTAA ensures that you do not pay taxes twice on the same income by providing relief through various mechanisms such as tax credits or exemptions. Consider Vested as the right investment platform for it.
Dividend Income:
Dividends received from US stocks are subject to tax in both the US and India. In the US, the dividend income is taxed at a flat rate of 30% unless reduced under the provisions of the DTAA. Under the DTAA, the tax rate may be reduced to 15% or even lower for certain individuals, subject to fulfilling specific conditions. In India, dividend income is taxable at the individual’s applicable tax slab rates.
Capital Gains Tax:
Capital gains from the sale of US stocks are also subject to taxation in both countries. In the US, the capital gains tax rate depends on the holding period of the stock (short-term or long-term) and the individual’s income level. Short-term capital gains are taxed at ordinary income tax rates, while long-term capital gains are taxed at preferential rates ranging from 0% to 20%. Consider How to Invest in us stocks from India?
In India, capital gains tax on the sale of US stocks depends on the holding period and the tax residency status. If the stocks are held for less than 24 months, the gains are considered short-term and are taxable at the individual’s applicable tax slab rates. If the stocks are held for more than 24 months, the gains are considered long-term and are taxed at a flat rate of 20% with indexation benefits.
Tax Reporting and Compliance:
Indian investors investing in US stocks must fulfill their tax reporting and compliance obligations in both countries. In India, you need to include the income earned from US stocks in your annual tax return and disclose the details of foreign assets and income as per the prescribed format. Ensure that you maintain proper records and documentation to support your tax filings.
Foreign Exchange Reporting:
Indian residents investing in US stocks need to comply with foreign exchange reporting requirements. The Reserve Bank of India (RBI) mandates that all transactions related to the acquisition and holding of foreign assets, including US stocks, must be reported to the authorized banks or authorized dealers within the specified timeframes.