Investing in global companies is becoming increasingly popular among Indian investors. However, when you diversify into U.S. equities, understanding the Tax on US Stocks in India is crucial to avoid surprises during tax filing. While U.S. markets offer strong growth potential, understanding cross-border taxation is crucial for smooth compliance and avoiding surprises.

Why Indians Invest in US Stocks

The U.S. market is home to some of the world’s biggest companies and innovative sectors. Indian investors often choose U.S. equities to diversify portfolios, hedge against currency depreciation, and gain exposure to industries less represented in India. But along with these benefits comes the responsibility of knowing how the tax system works.

How Dividends Are Taxed

When an Indian resident receives dividends from U.S. companies, the U.S. government deducts 25% withholding tax at source. For example, if you earn $100 in dividends, only $75 reaches your account. In India, dividends are also taxable according to your income tax slab.

Fortunately, India and the U.S. have a Double Taxation Avoidance Agreement (DTAA). This allows investors to claim credit in India for the tax already deducted in the U.S., ensuring you are not taxed twice on the same income.

Capital Gains Tax Rules

Selling U.S. stocks results in capital gains, which are taxed differently than dividends. In India:

• Short-Term Capital Gains (STCG): If you sell within 24 months, gains are added to your taxable income and taxed at your slab rate.
• Long-Term Capital Gains (LTCG): If you hold the stock for more than 24 months, gains are taxed at 20% with indexation benefit.

Unlike dividends, the U.S. does not tax capital gains for non-resident Indians. So, only Indian tax rules apply when you sell.

Filing Taxes in India for US Investments

When declaring foreign income in your Income Tax Return (ITR):

1. Report dividends under “Income from Other Sources.”
2. Report capital gains separately under STCG or LTCG.
3. Disclose foreign assets in the Schedule FA of your ITR.
4. Claim DTAA benefits to avoid double taxation.

Maintaining clear transaction records, including Form 1042-S (for U.S. dividends), helps ensure compliance.

Practical Example

Suppose you earn $500 in dividends from U.S. stocks. The U.S. deducts $125 as withholding tax. In India, if your slab rate is 30%, you owe ₹12,500 more after adjusting for the tax credit. On the other hand, if you sell shares for a long-term profit, Indian LTCG rules apply at 20% with indexation.

Conclusion

Understanding Tax on US Stocks in India helps investors plan better and avoid compliance risks. Whether it’s dividends or capital gains, you should always track both U.S. and Indian tax obligations. With proper documentation and the benefits of DTAA, Indian investors can maximize returns while staying tax-efficient.

FAQs

1. Do I need to pay tax in both India and the U.S. on dividends?
   Yes, the U.S. deducts tax at source, and India taxes dividends again, but you can claim credit under DTAA.
2. Are capital gains from U.S. stocks taxed in the U.S.?
   No, the U.S. does not tax capital gains for Indian residents; only India taxes them.
3. What if I don’t report my U.S. stock investments in India?
   Non-disclosure can lead to penalties under the Black Money Act. Always report foreign assets in your ITR.
4. Which ITR form should I use?
   Generally, ITR-2 is required if you have foreign assets or income from capital gains.

5: Can I claim tax credit in India automatically?
Yes, but you must report U.S. dividends accurately in your ITR to claim DTAA credit.