Budget 2024: Tax Implications on US Stocks and Bonds

The budget is the talk of the town, and for good reason. This year’s financial blueprint brought some significant changes that could impact us all. Let’s dive in and explore the key highlights.

We’ll start with the news that’s likely to have the biggest impact on investors: changes to capital gains tax on foreign stocks.

Changes in taxation of US Stocks

Long-term capital gains (LTCG): If you’ve held a foreign stock for over 24 months, you will have to pay Long term capital gains tax. In the Budget 2024, the government has reduced the LTCG tax from 20% to 12.5%. However, there would be no indexation benefit.

Short-term capital gains (STCG): Profits from holding foreign stocks for less than 24 months are classified as Short-term capital gains. These are added to your income and taxed at your regular income tax slab rate. There is no change in STCG in Budget 2024.

Dividend gains: Profits from dividend income will continue to be taxed in the US at flat 25%. There is no change in taxation of dividend gains in Budget 2024.

Changes in Tax Collected at Source (TCS) when remitting money abroad

Another major change in Budget 2024 was on TCS. Currently, if you send over Rs. 7 lakh abroad in one financial year, the additional amount will attract 20% of the tax collected at Source (TCS).

Now, you can set off TCS against TDS on salary. You can directly inform your employer about TCS paid on foreign travel, investments, or remittances, and they’ll adjust your TDS accordingly. Previously, you could only adjust TCS on advance tax or claim a refund while filing income tax returns at the end of the financial year, which led to delays in refunds. This new rule eliminates the hassle of claiming refunds later.

Revised Taxation on INR Bonds

Listed Bonds

Listed bonds are those that are traded on recognized stock exchanges. The tax treatment for capital gains arising from these bonds is as follows:

• Long-Term Capital Gains (LTCG): If a listed bond is held for more than 12 months, any profit realized upon its sale is considered LTCG. The tax rate for LTCG on listed bonds has been increased from 10% to 12.5%.
• Short-Term Capital Gains (STCG): If a listed bond is held for 12 months or less, the profit is classified as STCG. The tax on STCG is determined based on the individual’s applicable income tax slab rate. There is no change in STCG under Finance Budget 2024.

Unlisted Bonds and Debentures

Unlike listed bonds, unlisted bonds and debentures are not traded on stock exchanges. For these instruments, the tax treatment has undergone a significant change:

• Capital Gains: All capital gains from unlisted bonds and debentures are now considered short-term capital gains, regardless of the holding period. This means that the tax on these gains will be determined based on the individual’s applicable income tax slab rate.

Previously, capital gains from unlisted bonds and debentures were classified as long-term if held for more than 36 months and taxed at a 20% rate without indexation benefits. If held for less than 36 months, they were considered short-term and were taxed at applicable income tax slab rates.

However, this holding period rule has been eliminated. These changes will take effect on July 23, 2024. Any capital gains realized before this date will be taxed according to the previous tax rates.

TDS on Interest Earned on Government Securities

A 10% Tax Deducted at Source (TDS) will be applicable on interest earned from government securities, including Floating Rate Savings (Taxable) Bonds (FRSB) 2020 or any other notified security of the Central or State Governments, if the annual interest income exceeds ₹10,000. This new rule will take effect from October 1, 2024.

Did you find any of these changes particularly impactful? Let us know in the comments!

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