Key Takeaways
- US dividends can be taxed in both the US and India.
- The India-US DTAA can reduce US withholding tax to 25%.
- US dividends must be reported in your Indian ITR.
- A foreign tax credit may be available for eligible US taxes paid.
- The gross dividend should generally be reported when calculating your income.
- Leaving dividends in your brokerage account does not change taxation.
| In short: US dividends are taxed twice. The US withholds 25–30% at source, and the gross (pre-tax) dividend is then taxed again in India as “Income from Other Sources.” You can generally claim a foreign tax credit in India for the US tax already withheld. |
When you invest in US stocks from India, taxes can apply in two broad situations: capital gains tax when you sell a US stock, and dividend withholding tax when you receive dividends from the US stock.
This article focuses on how US dividends are taxed for Indian investors. We will look at how dividend income is taxed, what happens to the tax deducted in the US, and how you report it when filing your ITR.
How Are US Stock Dividends Taxed?
If you earn dividends from US stocks as an Indian investor, they may be taxed in both the US and India.
US Withholding Tax Rate on Dividends (25% vs 30%)
The standard US withholding tax rate on dividends paid to nonresident investors is 30%. However, eligible Indian residents can generally avail of the 25% rate under the India-US DTAA (Double Taxation Avoidance Agreement). The lower rate becomes applicable only if you submit Form W-8BEN to your broker.
This tax is usually withheld before the dividend is credited to the investor’s account. For example, if you are due to receive a $100 dividend, $25 would be withheld as US tax, and $75 would be credited to your account.
How the Dividend Is Taxed in India (Income from Other Sources)
The dividend is also taxable in India. It is generally treated as income from other sources and taxed at your applicable income tax slab rate. However, you may be able to claim a foreign tax credit in India for the eligible tax already paid in the US, subject to the applicable rules.
This means the US tax deducted from your dividend does not replace your Indian tax liability. Instead, the eligible US tax paid can be claimed as a credit against your tax liability in India.
How Is US Dividend Income Reported In India?
Once the dividend reaches your brokerage account, you still need to report it when filing your Indian ITR. US dividend income is generally reported under Income from Other Sources (Schedule OS) in your ITR. Since the dividend is foreign-source income, you also need to report the relevant details in Schedule FSI (Foreign Source Income).
Quick definition: Grossing up means you report the full pre-tax (gross) US dividend as your income in India. You then claim the US tax that was already withheld as a foreign tax credit, instead of just reporting the smaller, after-tax amount you received.
If you are claiming a foreign tax credit for tax already deducted in the US, you need to report the relevant details in Schedule FSI and Schedule TR (Tax Relief) and submit Form 67. Form 67 is a mandatory statement that resident Indians must file while claiming a foreign tax credit.
One point that can be confusing is the amount you need to report in your ITR. You should generally use the dividend amount before US tax was deducted.
Worked Example: Grossing Up a Johnson & Johnson (JNJ) Dividend
Suppose you held 10 shares of Johnson & Johnson (JNJ) on 25 August 2026, the record date for its quarterly dividend. J&J had declared a dividend of $1.34 per share, which was payable on 8 September 2026. This meant you were entitled to a gross dividend of $13.40.
If 25% was withheld as US tax, $3.35 would have been deducted, and you would have received $10.05 in your brokerage account.
However, for Indian tax purposes, your dividend income would be the gross amount of $13.40, not the $10.05 you received after US tax. You would convert the $13.40 into Indian rupees and report the full amount as dividend income in your ITR. The $3.35 withheld in the US may generally be claimed as a Foreign Tax Credit (FTC) in India, subject to the applicable rules and limits.
Reporting the dividend before deducting the tax withheld in the US is referred to as grossing up the US dividend income in your ITR.
Quick-Reference Table: How a $100 US Dividend Is Taxed for an Indian Investor
| Step | Amount |
| Gross US dividend | $13.40 |
| US withholding at 25% | $3.35 |
| Amount credited to you | $10.05 |
| Dividend reported in India | $13.40 |
| Indian tax | Based on applicable slab |
| Eligible foreign tax credit | Subject to applicable rules |
Should an Indian investor be required to file a US tax return?
Indian investors who have only received dividend income from US stocks do not need to file a separate US tax return since the tax which has been withheld by their broker usually fulfils the US tax liability on that income; it may, however, be necessary to file in certain cases, for example, if you are applying for a refund of tax that has been over-withheld.
Does the Form 1040-NR apply to Indian investors who are purchasing shares in the United States?
Form 1040-NR is the tax form used by nonresident aliens. It is generally required when a nonresident alien has US-source income for which withholding has not been complete, is carrying on a US trade or business, or wishes to obtain a refund of tax that has been withheld. In the case of an Indian investor who only holds US stocks and whose dividends have the proper withholding already deducted, Form 1040-NR is usually not needed.
How Form W-8BEN Eliminates the US Tax Return Filing Requirement
The form W-8BEN proves to your broker that you are a nonresident alien who is entitled to treaty benefits under the India-US DTAA. When it has been filed, your broker will withhold US tax on the dividends at source (at a rate of 25% rather than 30%). Since this withholding is usually considered to meet your US tax obligation with respect to that dividend income (which the IRS classifies as “FDAP” — Fixed, Determinable, Annual, Periodical — income), the majority of investors have no need to file a separate US tax return for their dividend income after the W-8BEN has been submitted.
Should I pay taxes to the IRS just because I have bought US stocks from India?
Not at all. Just purchasing US stocks does not result in any US tax liability. US tax only comes into play if you
1. receive a dividend, in which case withholding tax applies, or in some limited situations
2. sell the shares while satisfying certain US residency or presence requirements, although these conditions generally do not apply to Indian resident investors.
Capital gains from the sale of US-listed stocks are not generally subject to US tax for non-resident Indian investors, though such gains are still taxable in India.
What Happens If You Leave The Dividend In Your Brokerage Account?
Leaving the dividend in your brokerage account does not change the tax treatment. If the dividend has been credited to your account, you still need to report it in your ITR. So, you can leave the money where it is or use it to buy another investment.
When reporting US stock dividends in your ITR, keep the necessary details handy, including your dividend statement, US tax deducted, and the amount credited to you. You may need these details when filling in Schedule FSI and claiming an eligible foreign tax credit through Schedule TR.
Is the amount of unrealised gains from US stocks subject to tax in India?
Not at all; neither the United States nor India impose taxes on unrealised (paper) gains from shares—taxes on capital gains only come into effect when the shares are actually sold. It is necessary, however, to report the unsold US shares for disclosure purposes in your ITR even though no gain has been realised.
Are gains from holding US stocks taxable in India?
Holding US stocks does not in itself result in any tax liability in India; you do not have to pay tax on the rise in value of the shares you continue to hold. However, two circumstances may still apply when you are holding the shares: the dividends you receive are taxable annually, and the holding must be declared as a foreign asset in Schedule FA of your ITR.
Reporting Unsold US Stocks in Schedule FA (ITR)
Under Schedule FA, Indian residents are required to disclose their foreign assets, such as US stocks, no matter whether they have sold them or not. This is a reporting obligation, not a tax on unrealised gains—you must provide information including the name of the stock, the country, the original purchase cost, and the peak or closing value during the year, even if you have not sold any shares. Penalties may be imposed by Indian law if foreign assets are not reported on Schedule FA, so the form should not be omitted even when it comes to stocks that you intend to hold for a long time.
What Should You Keep Ready While Filing Your ITR?
When you sit down to file your ITR, having the right records nearby can save you from going back and forth between different documents. For US dividends, keep these details ready:
- Dividend statement: Check the gross dividend declared and the amount actually credited to your account.
- US tax deducted: Keep the details of the tax withheld from your dividends.
- Exchange rate: Keep the applicable exchange rate or conversion details used to report the dividend income in INR.
- Foreign tax credit details: If you are claiming credit for tax paid in the US, keep the relevant documents and Form 67 details ready.
How Can Vested Help With US Dividend Tax Reporting?
Keeping track of dividends, US tax deducted, and the information needed for your Indian tax return can become tedious, especially if you receive dividends from several stocks. Vested’s Tax Documents module brings these details together, including information on dividends, foreign assets, foreign-source income, tax relief, and Form 67.
The documents are available from the Profile → Tax Documents section of the platform. Vested also integrates with ClearTax, allowing the tax information to be transferred to ClearTax when you are ready to file your ITR.
Conclusion
US dividends can be taxed in both the US and India, but the tax is handled differently in each country. The US may deduct tax before the dividend reaches you, while you still need to report the dividend in India. You may also be able to claim a foreign tax credit for eligible US tax paid, subject to the applicable rules.
Keeping your dividend statements, US tax details, and other records in place can make the filing process easier. If you invest through Vested, you can also access your investment and tax-related information on the platform when you need it for reporting.
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Frequently Asked Questions
Do You Need to File US Tax Returns if You Invest in US Stocks?
Not usually. If you are an Indian resident investing in US stocks as a non-resident alien, US tax is generally withheld on dividends, provided the required tax forms, such as a Form W-8BEN, are in place. However, certain situations can still require a US tax return.
Do I need to pay tax on US stocks if I just hold them?
Simply holding US stocks does not create a capital gain because you have not sold the shares. However, any dividends you receive can still be taxable in India, and applicable foreign holdings may also need to be reported in Schedule FA.
Do Indians Pay Double Tax on US Stock Dividends?
Not necessarily. The US may withhold tax on the dividend, but eligible investors can generally claim credit in India for the foreign tax paid, subject to the applicable rules.
Is US Dividend Income Taxable Under Income From Other Sources?
Yes. US dividends received by an Indian resident are generally taxable in India under Income from Other Sources. The income also needs to be reported as foreign-source income in the relevant ITR schedules.
Does the India-US DTAA Apply to US Dividends?
Yes. This DTAA can reduce the US withholding tax on dividends for eligible Indian residents. The US dividend tax rate under the India-US DTAA is reduced from the standard 30% rate to 25%. You need to meet the treaty requirements and submit the required documentation to claim the lower rate.
Does Form 1040-NR Apply to Indian Investors Buying US Stocks?
In most cases, no. You only need to file Form 1040-NR in certain situations, like if you want to claim a refund for extra tax that was withheld. If your broker has withheld the right amount of tax on your dividends after you submit Form W-8BEN, you usually do not need to file a separate US tax return just for owning or getting dividends from US stocks.
Does Filing Form W-8BEN Remove the Need to File a US Tax Return?
For most Indian investors who only earn dividends from US stocks, yes. The tax withheld under W-8BEN usually covers your US tax obligation for that income, so you generally do not need to file a separate US tax return.
Do I Need to Report Unsold US Stocks in Schedule FA?
Yes. Schedule FA asks you to report foreign assets, including any US stocks you still own, even if you have not sold them or made any profit. This reporting is separate from paying tax on gains.
