Income Tax on Gains from the US stocks: Due to the great opportunity to make profits in American stocks, the attraction of Indian retail investors has increased rapidly. However, just as profits from investments in domestic stocks have to be disclosed to the Income Tax Department, similarly, profits from investments in American stocks also have to be reported to the Income Tax Department. However, the rules are slightly different in the case of US stocks.
In today’s time, it has become possible to invest in companies listed on the American stock exchange even while sitting in India. There are some online platforms that allow Indian investors to invest in American stocks or US ETFs (Exchange Traded Funds). This helps in diversifying the portfolio.
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No tax on capital gains in the US
Shares listed in the foreign market are treated as unlisted shares in India. There is no tax to be paid on capital gains in the US and all profits made on US stocks are credited to your account. Since no tax has been paid on profits in the US, one cannot claim tax credit on capital gains in India. Apart from this, tax will have to be paid on it in India. According to Abhishek Soni, co-founder and CEO, Tax2wind.in, Indian taxpayers have to report short-term and long-term gains from US stocks to the Income Tax Department according to the holding period.
Holdings of less than 24 months are considered as short term and short term profits will be taxed at the common slab rate. Conversely, if you sell your holdings after 24 months, you will have to pay a tax of 20 per cent (additional surcharge and health and education cess). In case of long term capital gain, the benefit of indexation will be available.
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25% tax on dividend income in the US
In the US, dividend income is taxed at 25%. For example, if a dividend of $ 1000 has been received from dividend in America, then only $ 750 will be credited to the investor’s account after deducting 25 percent tax. However, when filing ITR in India, you can show the entire dividend amount in rupees and then claim a credit of $250.
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If the tax is paid in America then this is the rule
Tax rules also apply to Indian investors investing in stocks listed on the American stock exchange. However, having a Double Taxation Avoidance Agreement (DTAA) helps ensure that you do not have to pay tax twice on the same income. According to Soni, under the provisions of this agreement, resident individuals can claim benefits on tax paid outside India. Taxpayers have to make full disclosure of profits and losses in ITR.
(Article: Rajeev Kumar)
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