International investing is a great way to provide much-needed portfolio diversification to your portfolio. Tax implications of investing in US stocks are very similar to those of investing in Indian stocks.
In this blog, we will run through the actual tax filing process for US equity investing. We will use the year-end tax statements that our partner – Vested provides at the end of the Indian financial year.
You need to perform the following three main tasks:
1. Disclosing foreign asset:
You need to disclose your foreign investments under Schedule FA (where FA stands for Foreign Asset). Schedule FA is available under ITR-2 while filing Income tax returns. This section will be available across all major tax-filing solutions and accessible on the government portal.
Here, you disclose the asset you own, the country where it’s held, the company’s address, its initial – peak, and closing value in rupee terms. You can copy the details of individual securities from the excel sheet provided to you by Vested.
2. Capital gains, dividend, and interest:
Similar to Indian equities, you disclose the proceeds on your US investments. You will get an excel file from Vested summarizing the proceeds, dividends, interest, long-term gains (if applicable), and short-term gains; with individual transactions and grouped heads.
For capital gains:
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- The amount shown in the file is in INR (converted at the specified rate as per tax rules). It simplifies the tax filing process.
- You may choose to add the gains as a one-line item (if the amount is not large). Let your tax expert take this call.
- State the nature of the company as unlisted.
- The securities transaction tax is not paid; hence do not select “STT paid option” if asked.
For dividend and interest income:
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- Add the INR amount from the CG file under other income.
- Add gross dividend from foreign companies (in INR) from the summary file.
- Add interest (in INR) from the summary file
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3. Claiming credit on tax withheld on the dividends in the US:
US government deducts tax at source from your dividend income. The US authorities have a double tax avoidance treaty with India that ensures that you as an Indian taxpayer, do not get taxed the second time for your dividend income.
Vested provides you Form 67 that contains the information for you to claim the tax credit. If the tax withheld by the US authority is not significant then you may choose to not file this form and claim credit from the Indian tax authorities for it.
Assuming, you have completed the other sections in ITR (salary, business income, deductions), and you proceed to the US investing, here is the summary of to-do:
- File the Schedule FA form using file FA
- Add the capital gains as per file CG
- Include dividend and interest in the other income as per file CG
Once the above is complete, you can proceed to submit the ITR.
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