What are the tax implications for Indians investing in US stocks?  | Motilal Oswal

Tax implications for Indians investing in US stocks

It's critical to understand the fees and taxes to ensure that the net profits are worthwhile. Let’s go through the tax on US equities in India in depth in order to provide a clear picture and dispel any misconceptions. Continue reading to learn more about capital gains tax on stock sales made outside of India.

  • What are the Tax Consequences?

There are two sorts of stock trading taxes in the United States that you should be aware of:

- Dividends are subject to taxation.

- Dividend Tax 1.Capital Gains Tax

When determining tax on US equities in India, dividends paid from US stocks must also be included. This sum is subject to a flat tax rate of 25%. As a result, if the firm announces a $100 dividend, you will get $75. Due to a tax deal between India and the United States, this rate is lower than the ordinary tax rate for foreign investors in the United States. Furthermore, the dividend paid in cash or reinvested is taxed in India according to the appropriate income tax slabs when added to your existing income. However, India and the United States have a Double Taxation Avoidance Agreement that permits you to balance your tax burden in India with the tax withheld in the United States.

As a result, if the corporation announced a $100 dividend, you would get $75. The tax due in India, on the other hand, would be determined on a $100 basis. Assume your tax obligation in India is $30. You will just have to pay $5 in India since you have paid $25 in the United States. Keep in mind that this is only a hypothetical scenario. The real-life calculation will take a little longer since you'll need to add $100 to your taxable income and calculate your tax due depending on your tax bracket.

  • Tax on Capital Gains

Another sort of tax on stock trading in the United States is capital gains tax. In the United States, there are no taxes on capital gains. As a result, if you purchase $500 worth of stock and sell it for $800, you will owe no tax on the $300 capital gain in the United States. In India, however, you will be required to pay taxes on this profit.

  • Capital Gains on Foreign Stocks: How to Calculate Them

As we all know, capital gains in India are taxed in two ways:

Long-Term Capital Gains (LTCG) — 24 months is the crucial number to remember here. If you kept the stocks for more than 24 months before selling them and accruing capital gains, you will be subject to a 20 percent capital gains tax, plus any relevant fees and surcharges.

Short-Term Capital Gains (STCG) — If you have held equities for less than 24 months before selling them and making capital profits, the gains will be added to your taxable income and taxed according to your income tax bracket.

Wrapping Up

To have reasonable expectations from your investment, you must first understand the taxation of foreign shares in India. Many investors avoid overseas equities because they are unaware of and/or concerned about taxes and penalties cutting into their profits. We hope that this post has provided you with a better understanding of the tax consequences of investing in US equities.

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