Investing Beyond Borders
Platforms like INDmoney and Vested have made it easy for Indians to invest directly in US stocks like Apple, Tesla, and Microsoft. However, the income tax rules for foreign stocks are completely different from Indian stocks.
Here is what you need to know about taxing foreign investments.
Quick stat: The US withholds a flat 25% tax on dividends paid to Indian investors under the India-US DTAA; you can recover it as a Foreign Tax Credit by filing Form 67 before your ITR (Source: India-US DTAA Article 10 and Rule 128). A DTAA is just a treaty that stops the same income being fully taxed in both countries.
1. Capital Gains on Foreign Stocks
Foreign stocks are not listed on recognized Indian stock exchanges (BSE/NSE). Therefore, the income tax department treats them as unlisted shares.
- Short-Term Capital Gains (STCG): If you sell the shares within 24 months.
- - Tax Rate: Added to your total income and taxed at your applicable slab rate.
- Long-Term Capital Gains (LTCG): If you hold the shares for more than 24 months.
- - Tax Rate: Taxed at 12.5% (or 20% with indexation, depending on the specific rules for the assessment year). You do not get the ₹1.25 lakh exemption that applies to Indian equity.
2. Tax on Foreign Dividends
When US companies pay dividends, the US government deducts a flat 25% withholding tax (thanks to the India-US Double Taxation Avoidance Agreement or DTAA).
In India, this dividend is fully taxable at your slab rate under "Income from Other Sources."
Do I pay tax twice? No. You can claim a Foreign Tax Credit (FTC) in your Indian ITR for the 25% tax already withheld in the US. You must file Form 67 before filing your ITR to claim this credit.
3. The Mandatory Schedule FA
If you own even a fraction of a US stock, or have money lying in a foreign brokerage account at any time during the year, you must declare it in Schedule FA (Foreign Assets) of your ITR.
You must report: - The name of the company. - The peak value of the investment during the year. - The closing value. - Any income derived from it.
You must use the State Bank of India (SBI) Telegraphic Transfer (TT) Buying Rate on specific dates to convert USD values to INR for reporting.
Filing your ITR You must use **ITR-2** or **ITR-3**. ITR-1 cannot be used if you have foreign assets.
The penalties for hiding foreign assets under the Black Money Act are draconian (up to ₹10 lakh penalty). Always declare your US brokerage accounts in Schedule FA, even if you made no trades during the year. Use LastMinute ITR's checklists to ensure you have all your foreign broker statements ready before heading to incometax.gov.in.
Start with LastMinute ITR · import your statements · fix an AIS mismatch.
What you should do
- File Form 67 before your ITR to claim the Foreign Tax Credit on US dividends.
- Report peak value, closing value, and income for each holding in Schedule FA.
- Use the SBI TT Buying Rate for the relevant dates to convert USD to INR.
Common mistake
Skipping Schedule FA in a no-trade year. Even if you only held INDmoney or Vested US stocks and never sold, the foreign asset disclosure is still mandatory. Omitting it triggers Black Money Act exposure.