Tax implications for Indian Investors investing in the US stock markets
Hi, this is Viram from Vested, and today we are going to be talking about the most frequently asked question: How do taxes work when an Indian resident is investing in the US stock market?
The #1 thing that you need to know is that there are no taxes that you need to pay in the US. The second thing is that there are two types of taxes. One is the taxation on investment gains or capital gains; and the 2nd is the taxation on dividends.
Now in terms of investment gains the tax rate will depend for how long you hold your investment.
If you are investing in a stock, then long-term is considered as 24 months. Whereas, if you are investing in an ETF then long-term is considered as 36 months.
So, if you hold your investment for more than the long-term threshold, then the tax rate that is applicable to you is 20% along with indexation benefits and if you hold your investment for the short term, then the tax rate is as per your income tax slab.
Now, looking at dividend Tax, there is a 25% withholding tax in terms of dividends in the US. This means that whenever you are entitled to let’s say $100 of dividend, $25 will be deducted by the broker before crediting the rest of the $75 into your brokerage account. But the good thing is that the US and India have a Double Taxation Avoidance Agreement (DTAA), this means that you can take credit for the 25% tax you’ve paid when you are filing your taxes in India.
We at Vested simplify this entire procedure by providing you with the required information for filing your taxes in India at the end of the fiscal year. So that was all about taxes, stay tuned for more.