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The allure of investing in US stocks has been growing among Indian investors for several reasons. The US stock market, being one of the largest and most mature financial markets globally, offers a diverse range of investment opportunities in some of the world’s leading companies. Additionally, the potential for higher returns and the ability to hedge against currency risk are attractive prospects.
Capital gains from US stocks are taxed in India based on how long you hold the stock before selling it. This holding period determines whether the gains are classified as LTCG (Long-Term Capital Gains) or STCG (Short-Term Capital Gains), and each has a different tax treatment:
Here is the summerise table to understand capital gain tax:
| Holding Period | Capital Gains Type | Tax Rate |
|---|---|---|
| Over 24 months | Long-Term (LTCG) | 20% + surcharge & cess (no indexation) |
| Less than 24 months | Short-Term (STCG) | Your income tax slab rate |
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Dividends from US stocks are subject to a flat 25% tax rate in the US due to the India-US Double Taxation Avoidance Agreement (DTAA). In India, these dividends are added to the investor’s income and taxed according to the applicable income tax slabs. However, the tax paid in the US can be claimed against the tax liability in India, and this is because of the DTAA agreement between the USA and India.
Exchange rate variations can introduce numerous complexities. In the United States, reporting periods align with the calendar year, while in India, we adhere to the financial year (April to March). This discrepancy can pose challenges in accounting and reporting, particularly when claiming credits.
The SBI TT buying rate is utilized to convert USD to INR. It's essential to verify this rate on the final day of the month directly preceding the month in which the company declares, distributes, or pays dividends. This principle also extends to capital gains.
Foreign exchange fluctuations can have significant tax implications for Indian investors. Any gains or losses arising from such fluctuations are considered for tax purposes. For instance, if an investor incurs a loss due to a decline in the value of the US dollar against the Indian rupee, this loss can potentially be deducted from their taxable income. Conversely, gains from favorable exchange rate movements may be taxable.
It’s crucial for Indian residents investing in US stocks to adhere to tax reporting requirements. They must comply with the FEMA (Foreign Exchange Management Act) and disclose their foreign assets and income in their tax returns. This includes any capital gains or dividends earned from US stocks. Failing to report these can result in penalties and legal issues. It’s also important to keep track of the exchange rates applicable at the time of transactions, as these will affect the tax calculations.
For Indian investors seeking portfolio diversification, venturing into the US stock market presents a promising opportunity. Renowned for hosting globally successful corporations like Facebook, Google, Apple, General Motors, and numerous others, the US stock market offers substantial potential returns.
Long-term capital gains (LTCG) incurred on foreign shares are subject to a 20% tax rate, in addition to any relevant surcharges and cess. The cost inflation index can be utilized to adjust the acquisition cost when computing taxable LTCG/L. Short-term capital gains (STCG) are taxed according to the individual's applicable tax rates, along with any relevant surcharge and cess.
yes! You can do so easily. There are two primary methods for investing in the US stock market from India: Directly investing in stocks or indirectly investing through mutual funds or ETFs.
