An Indian resident who invests in US stocks faces tax in two countries: the United States withholds tax on dividends. India taxes the gains and the dividends again with a credit for the US tax in the case of dividends. Gains on US shares held for than 24 months are taxed in India at 12.5% without indexation and gains on shares held for 24 months or less are taxed at the investors slab rate.
The tax implications of investing in US stocks also include the tax collected at source (TCS) on the money sent abroad the disclosure of assets in the income tax return and for direct holdings the US estate tax. Each applies at a stage so the table below follows the investment from the remittance to the sale.
Tax at each stage
| Stage | Tax or rule | Detail |
|---|---|---|
| Sending money abroad | TCS under the Liberalised Remittance Scheme (LRS) | None up to ₹10 lakh in a year and 20% on the amount above it. It is creditable against the tax payable or refundable when the return is filed. |
| Receiving dividends | US withholding tax and Indian income tax | The US withholds 25% when Form W-8BEN is on file and 30% when it is not. India taxes the dividend at the slab rate. |
| Selling the shares | Capital gains tax in India | than 24 months: 12.5% without indexation. 24 Months or less: slab rate. |
| Filing the return | Disclosure of assets in Schedule FA | Required for residents who are ordinarily resident including years with no sale or dividend. |
| Holding until death | US estate tax | US rules can apply to a -US persons US shares above a threshold, which is USD 60,000 under current rules with rates up to 40%. |
Capital gains: worked examples
Capital gains are worked out in rupees with the cost and the sale value converted at the exchange rates on the relevant dates so the movement of the rupee is part of the gain. The ₹1.25 lakh yearly exemption available on listed equity does not apply to US shares.
| Item | Long-term sale | Short-term sale |
|---|---|---|
| Purchase | $1,000 at ₹85 per dollar which is ₹85,000 | $1,000 at ₹85 per dollar which’s ₹85,000 |
| Sale | $1,500 at ₹90 per dollar which is ₹1,35,000 after 30 months | $1,500 at ₹90 per dollar which is ₹1,35,000 after 10 months |
| Gain in rupees | ₹50,000 | ₹50,000 |
| Tax rate | 12.5% plus 4% cess | 30% slab plus 4% cess which is 31.2% |
| Tax | About ₹6,500 | About ₹15,600 |
The long-term gain in the example includes a currency gain since the rupee weakened from ₹85 to ₹90 per dollar while the share price rose from $1,000 to $1,500 of value. Surcharge is not included in the figures. Applies at higher income levels.
Dividends: worked example
| Step | Amount |
|---|---|
| Dividend declared | $100, which’s ₹9,000 at ₹90 per dollar |
| US tax withheld at 25% | $25 which is ₹2,250 so $75 reaches the investor |
| Indian tax at the 30% slab plus cess (31.2%) | ₹2,808 on the full ₹9,000 |
| Credit for the US tax claimed through Form 67 | ₹2,250 |
| Indian tax still payable | About ₹558 |
The credit is limited to the lower of the foreign tax paid and the Indian tax on the same income. An investor in a slab can have a credit that exceeds the Indian tax and the excess is not refunded. Form 67 must be filed on the income tax portal before the return date with proof of the US tax paid.
Reporting and records
| Record | Why it is needed |
|---|---|
| Purchase and sale dates and amounts in dollars | They give the holding period and the cost for the capital gains calculation. |
| Exchange rates on the transaction dates | They convert the dollar values into rupees. |
| Dividend statements and tax withheld | They support the income reported and the credit claim. |
| Year-end. Peak values | They feed the foreign asset details in Schedule FA. |
| Form. The TCS receipts | They prove the treaty status and the tax collected on remittances. |
Points that investors often miss
| Point | Detail |
|---|---|
| Foreign asset disclosure is separate from tax | Schedule FA applies when no tax is due and non-disclosure can attract penalties under the Black Money Act. |
| Setting off losses | Long-term losses can be set off against long-term gains and the rules for carrying forward need the return to be filed on time. |
| Different routes | holdings, funds and GIFT City products are taxed differently so the route changes the result. |
| Dividend reinvestment | Reinvested dividends are still taxed as dividend income in the year received. |
| Rule changes | Tax year 2026-27 falls under the Income-tax Act, 2025 which has sections and forms so the form names on the portal are worth confirming. |
What investors should take from this
The tax on US stocks is manageable when the records are kept from the remittance. The three items that surprise investors most are the lack of the ₹1.25 lakh exemption the tax on dividends that needs a credit claim and the foreign asset disclosure that applies every year.
Kuveras guides on Form 67 and foreign tax credit and on how to buy US stocks with a dollar order explain the credit claim and the funding costs in more detail.
Frequently Asked Questions
1. How are US stock gains taxed in India?
Gains on shares held than 24 months are taxed at 12.5% without indexation and gains on shares held 24 months or less are taxed at the slab rate.
2. Is the ₹1.25 lakh exemption on US shares?
No. That exemption applies to specified Indian listed securities.
3. How are US dividends taxed?
The US withholds 25% with Form W-8BEN on file India taxes the dividend at the slab rate. The US tax is credited through Form 67.
4. What is Schedule FA?
A part of the income tax return where residents who are ordinarily resident disclose assets, including US shares and bank accounts abroad.
5. Is TCS a cost?
Not permanently. It is advance tax collected at 20% on remittances above ₹10 lakh in a year and it is adjusted against the tax payable or refunded though it blocks cash until then.
Investments in securities are subject, to market risks. Read all documents carefully. Tax rules mentioned here reflect rules and can change.
