How taxes will work when buying US stocks for Indian investors

Vested’s mission is to make investing in the US stock market simple for investors from India. We have made reporting Indian taxes easy for you. In this article, we will give you a primer on how taxes work when buying US stocks from India. And to further simplify the process – we create a report that you can easily submit to your tax preparer, with everything that you would need to file.

For investors in India, there are two types of taxation events when you have returns from your investments in US stocks:

Tax on investment gains:

This tax is payable if you sell your investments at a higher price than when you buy them, and is calculated as the sale price minus purchase price. You will be taxed in India for this gain. You will not be taxed in the US. The amount of taxes you have to pay in India, at the end of the fiscal year, depends on how long you hold the investment:

1. To qualify as a long term capital asset, the period of holding in case of shares and ETFs is over 24 and 36 months respectively. Thus if you hold the shares for more than 24 months and ETFs for more than 36 months → the gain will be taxed at a long term capital gains tax rate of 20% (plus the applicable surcharge and cess).
2. Whereas, if you hold the shares and ETFs for less than 24 and 36 months respectively → the gain qualifies as short-term capital gains and will be taxed as normal income in India. For example, if you buy one Google stock at a share price of $1000 and you sell your share less than 24 months later for $1100, you will be taxed in India for the $100 gain you have made. Taxation is based on the tax bracket that you fall under according to your income level.

Tax on dividend:

Unlike investment gains, dividends will be taxed in the US at a flat rate of 25%. This means that the company paying the dividend will deduct the 25% taxes before distributing the remaining 75% to the investor. For example, if Microsoft gives an investor $100 of dividend, it will withhold $25 as tax, and will give the investor the post tax dividend of $75. The gross dividend is included as taxable income in India as normal income and taxed at slab rates.

Fortunately, US and India have a Double Taxation Avoidance Agreement (DTAA) which allows taxpayers to offset income tax already paid in the US. The 25% tax you already paid in the US is made available as Foreign Tax Credit and can be used to offset your income tax payable in India.

Vested platform makes tax filing easy:

In order to make Indian tax fillings easy for you, we have prepared everything that you would need to give your Chartered Accountant or your tax preparer. 

We have created summaries for capital gains, dividend and dividend tax (if applicable), and foreign asset reporting for the relevant periods. All these are converted to INR as per the Indian Tax Department’s guidelines. Note that all the documents are prepared as per the Indian fiscal year except Schedule FA. Schedule FA is prepared on a Calendar Year basis in line with the Income tax department’s rules. 

You can find these documents under the Profile section of the platform.

Now that you know how taxes work when buying US stocks from India, learn how you can get started in buying US stocks.