Everything in this chapter so far has been about what you own and how returns flow back to you. But none of that tells you what actually lands in your hands after taxation. And with US stocks, taxation is not a single straightforward calculation. Two governments have a claim on your returns. How those two claims interact determines what you actually keep.

This section walks through that interaction carefully, because the numbers genuinely matter.

Foundational rule

India taxes its residents on their global income. That is the foundational rule, and there are no exceptions carved out for foreign investments. If you are an Indian resident and you earn a capital gain from selling shares of an American company, or receive a dividend from one, that income is taxable in India.

The US, separately, has its own interest in income that originates within its borders. A dividend paid by an American company to a foreign investor is, from the US government’s perspective, income sourced inside the United States. The US wants a portion of it before it leaves.

So you have two governments, two sets of rules, and one pool of money.

What prevents you from being taxed twice on the exact same rupee is an agreement called the Double Taxation Avoidance Agreement, or DTAA. India and the US have one. It decides which country taxes what, and how credit flows between the two systems when both countries have a valid claim. Understanding even the broad outlines of this agreement tells you most of what you need to know as an investor.