How to File Taxes for International Stock/ETF Investments in India

Investing in international stocks and ETFs has gained popularity among Indian investors looking for global diversification and better returns. Stocks from the U.S., like Apple and Tesla, along with ETFs such as SPY, are now easily accessible. However, earning from global markets presents its own challenges, especially when it comes to filing taxes for international stocks in India.

If you’re curious about how the tax system works on U.S. stocks in India or how to report gains, then you’re not alone. This article makes it easier to understand, covering everything from reporting in Schedule FA to claiming the foreign tax credit under the Double Taxation Avoidance Agreement (DTAA).

1. Understanding Taxability of U.S. Stocks in India

When you sell U.S. stocks or ETFs and make capital gains, the Indian Income Tax Act requires you to report and pay tax based on your residential status. Non-residents are not obligated to report and pay tax on foreign including shares or ETF gains. In case you are resident in India during the financial year then you have to report and pay tax on capital gain and dividend income both. DTAA relief can also be claimed for taxes paid outside India.

• Short-Term Capital Gains (STCG): If you hold them for less than 24 months, gains are taxed according to your income slab.
• Long-Term Capital Gains (LTCG): If you hold them for more than 24 months, gains are taxed at 12.5% after accounting for indexation benefits.

Additionally, any dividends you receive from U.S. stocks face a withholding tax in the U.S. (usually 25%-30%) and are also taxable in India.

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2. Reporting in Schedule FA

One key step in filing taxes for international stock investments in India is clearly reporting foreign assets and income in your Income Tax Return (ITR).

Use Schedule FA (Foreign Assets) to provide details of your foreign investments, such as the number of shares, the country, acquisition cost, and current market value.

It is important to declare all your foreign bank accounts, investments, and assets held outside India for the financial year as ignoring Schedule FA can trigger scrutiny during tax assessments.

3. Claiming Foreign Tax Credit (FTC)

Since the U.S. already withholds tax on dividends, India allows a relief mechanism under the DTAA to prevent double taxation. The below mentioned steps will guide you to claim the foreign tax credit:

• Fill out Form 67 before submitting your ITR.
• Attach proof of taxes paid abroad (like Form 1042-S from your U.S. broker).
• The FTC can be claimed as a deduction from your tax liability for India on the same income.

This ensures you don’t pay tax twice on the same dividend or capital gain.

4. Calculating Capital Gains on U.S. Stocks in India

For calculating capital gains:

• Convert the purchase price and sale proceeds from USD to INR using the RBI exchange rate on the respective transaction dates.
• The difference that is derived is your capital gain (or loss).
• Apply the correct tax rates based on STCG or LTCG as mentioned earlier.

5. Filing Your ITR

Once all your data is ready:

• Select the right ITR form (usually ITR-2 for non-business individuals with foreign assets).
• Fill in your income details, including capital gains, dividends, and disclosures for foreign assets.
• For claiming FTC, attach Form 67.
• Also don’t forget to submit before the deadline in order to avoid penalties.

Conclusion

Investing internationally brings exciting opportunities but also requires responsible tax filing for international stocks in India. Properly reporting in Schedule FA, calculating capital gains in INR, and claiming the foreign tax credit using Form 67 under DTAA can help you avoid unnecessary tax issues. Consider keeping this guide handy for managing your foreign assets.