In the previous chapters, you learned how investing and trading in the Indian stock market are taxed as per the Income Tax Act. We also touched upon maintaining books of accounts and rules of the tax audit.

Those chapters were written by @Nithin Kamath himself, that too, from an investor/trader’s perspective, giving you a clear picture of Indian markets and taxation.

In this chapter, I, @Satya Sontanam, look at how investments in foreign stocks are taxed in India.

If you think the tax rules of Indian investments are overwhelming, tax laws for foreign investments can get tricky and complicated.

The main challenge comes when the investments are taxed in a foreign country as well. On top of it, the tax laws of all countries differ from one another.

Here, we tried to simplify as much as we could to give you a brief understanding of what to consider when it comes to taxing income from foreign assets. We focus on investments in the stock market abroad and not on other forms of assets, including real estate.

 

8.1 – First Things First: Rules for Global Investing

When we hear about a few international stocks like Meta, Microsoft, Tesla, and Alphabet, it is totally natural to want to own a piece of these companies, isn’t it?

Lately, Indian investors have caught on to buying international stocks and diversifying their portfolios.

But how to invest in these stocks?

Many fintech platforms in India made investing in some of the foreign country’s stocks and ETFs (exchange-traded funds) simpler for retail investors compared to a few years ago.

But here’s the thing, investing in international stocks isn’t as straightforward as dealing with the Indian stock market. There are a few rules we have to keep in mind before taking the leap.

First, your overseas investments fall under the Liberalised Remittance Scheme (LRS). This is a scheme by the Indian government that lets you send up to 2.5 lakh dollars annually abroad. That’s about Rs 2 crore in Indian currency at the current exchange rate of Rs 82. So, you must keep your investments, along with other foreign trip expenses, abroad education costs, etc.. within that limit.

Next comes the tax collection at source (TCS) at 20% (5% before October 2023) if your foreign spending or investments exceed Rs 7 lakh per year. That is, even before you invest Rs 100, a tax of Rs 20 is deducted, and the balance is invested. Of course, you can use that Rs 20 to set off with your other tax liability later that year or claim a refund. To give some relief, Budget 2024 made it easier for salaried employees to offset TCS with TDS on their salary. For example, if you have a TCS credit of Rs 1 lakh and the TDS on your salary is around Rs 3 lakh a year, you can provide all the details to your HR, who will offset the TCS with your TDS liability. This results in only Rs 2 lakh being deducted during the financial year. This is a positive for taxpayers as the money deducted as TCS doesn’t get stuck with the government for a long time.

Next is about remittance: When you sell your investments, any money you get from the sale must be brought back to India within 180 days unless invested back. Funds can’t lie idle in foreign bank accounts.

Oh, and one more thing: when you file your income tax return in India, do not forget to disclose your foreign assets separately. The income tax department wants to know about all your global assets.

Remember that these restrictions apply when buying foreign stocks or ETFs directly. If you do not want to deal with LRS, TCS, tax disclosure, and remittance rules, you can also invest through Indian mutual funds in select international stocks and ETFs.

8.2 – Residency Status

An Indian resident must pay taxes on his/her global income, the taxman says.

What does it mean? If you are an Indian resident, you have to pay taxes on any income you earn, whether from India or abroad – be it in the US, UK, Australia, Singapore, or any other country.

But if you are a non-resident, the Indian government does not care about your foreign income. Our friends and family residing abroad investing there would not pay any taxes in India, right?

The taxman has specific rules to decide who is a resident and who is not. Basically, it depends on the period of stay in India. The definition of ‘resident’ is a bit technical. You can refer to the definition in the annexure to this chapter at the end to understand who qualifies as a resident.

The simplistic explanation is that if you are like many –  live and work in India – and take occasional trips abroad – you are a resident.

8.3 – Tax In India

When it comes to investments in stocks, there are two types of income to consider: capital gains and dividends.

Let’s talk about capital gains first. The taxability of capital gains depends on the holding period of the stocks. If you hold foreign company shares for more than 24 months, the gains are considered long-term capital gains and are taxed at 12.5% (plus applicable surcharge and cess).

On the other hand, if you hold the shares for up to 24 months, any resulting gains are considered short-term capital gains. These are added to your total income and taxed according to the applicable slab rates.

Now, let’s consider an example to understand how this works. Suppose you invested Rs. 1,00,000 in foreign stocks on April 1, 2018, which was equivalent to, say, $1,500.

When you sold your investment on August 31, 2024, say, you received $2,500.

As the stocks are held for more than 24 months, it qualifies for a long-term capital gains tax rate of 12.5%.

For tax purposes in India, you need to convert the sale amount into Indian rupees. You must use the exchange rate (telegraphic transfer buying rate provided by the State Bank of India) on the last day of the month prior to the month in which the sale happened.

In our example, since the sale happened in August, take the exchange rate at the end of July 2024. It was Rs. 83.7.

So, your sale value, as per Indian tax rules, would be about Rs. 2.09 lakh (Rs. 83.7 * $2,500).

Next, let’s calculate the taxable capital gains: Capital gains = Rs. 1,09,250 (Rs. 2,09,250 – Rs. 1,00,000).

Therefore, tax to be paid = Rs 1,09,250*12.5%, about Rs 13,656.

The above mentioned tax rates are applicable for shares that are sold on or after July 23rd, 2024, when Budget 2024 changed the rules. For shares sold between 1st April 2024 and July 22nd 2024, LTCG is taxed at 20% (with indexation benefit) and STCG is taxed at slab rates. The holding period is the same at 24 months.

Moving on to dividend income, it is treated as ‘income from other sources’ that has to be added to the taxpayer’s total income.

Just like with capital gains, you need to convert dividend income into Indian rupees using the exchange rate on the last day of the month prior to the month you received the dividend.

This will be added to your total income and taxed at your slab rate.

So far, we have discussed tax on investing in foreign stocks.

If you invest in foreign ETFs listed outside India directly or Indian mutual funds that are investing primarily in foreign stocks/ETFs, different tax rates are applicable based on the purchase date and the date on which the units are redeemed.

For units bought after April 1, 2023, any capital gains made during the financial year FY25 (April 1, 2024 to March 31, 2025) will be taxed at your income tax slab rate, no matter how long you held the investment. However, starting from April 1, 2025, new tax rules apply:

  • If you hold units for 24 months or more, Long-Term Capital Gains (LTCG) will be taxed at 12.5% without indexation.
  • Short-Term Capital Gains (STCG), for units held less than 24 months, will still be taxed at your income tax slab rate.

However, if you had invested in Indian-listed ETFs in foreign securities, the time period to differentiate between short—and long-term gains would be 12 months, with LTCG taxed at 12.5% and STCG at the slab rate. This rule, too, is applicable from April 1, 2025, onwards.

Sidenote: Quicko, a tax portal, has helped us in clarifying the tax rules on foreign investments, applicable after Budget 2024.

8.4 – Foreign Tax

Don’t breathe easy just yet. The toughest nut to crack is up next.

Just like non-residents investing in India are taxed in India, Indians investing abroad might face taxation in the foreign country too. You might wonder why you have to pay taxes twice, right?

Well, most governments, too, agree that taxing income twice isn’t fair.

The Indian government offers relief if you are taxed abroad. You might either be exempted from tax in India or receive a tax credit that you can use to pay your taxes here. To figure out which one applies, we have to dig into the Double Taxation Avoidance Agreements (DTAA) that India has with other countries.

Now, if finance stuff is not your cup of tea, these agreements can be pretty overwhelming, especially on the first read. You will need the expertise of a tax consultant to decipher it all.

Your broker or fintech platform might provide tax details on your investments, but you would be better off understanding how it works.

In many DTAA treaties, India follows the credit method to avoid double taxation. This means they give credit for taxes paid in the foreign country. This can set off tax liability on the same income in India. You can claim this credit by submitting Form 67 when filing the income tax return.

Let’s take the example of DTAA with the US-

For capital gains, the DTAA between the US and India states that each country may tax as per the provisions of its domestic law. This implies that both countries can charge tax.

But the US income tax laws do not charge capital gains tax on non-residents. So, the gains of Indians on US stocks are taxed only in India; hence, no double taxation.

Now, dividends. As per the DTAA between the US and India, dividends received from a US company are taxed only in India.

But here comes the catch – there’s a 25% withholding tax on gross dividends in the US. That means 25% is deducted at the source by the US, and you get the rest in your account.

No matter how much you receive, the entire gross dividend (converted into Indian rupees) will be taxed in India. In such cases, you need to submit Form 67 to claim credit for the withholding tax paid in the US.

Remember, these DTAA provisions and available tax credits can vary from country to country. If you are investing in countries other than the US and your broker isn’t helping with precise information, consider consulting your tax advisor. They will guide you through this tax maze!

8.5 – Reporting Of Foreign Assets In ITR

If you hate paperwork and endless documentation, reporting foreign assets and income in your tax return won’t be a walk in the park.

As a resident, you must disclose all foreign assets, like bank and depository accounts, stocks etc., held outside India while filing your income tax return. But if you fail to disclose them, you’ll face penalties and possibly even imprisonment under the provisions of Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

The income tax returns have dedicated schedules to fill in the detail of foreign assets, including foreign stocks.

As of now, there are three schedules (FSI, FA and TR) and one form (Form 67 discussed above to claim credit for tax paid abroad). Select the correct ITR form to fill in these details.

While we cannot discuss every aspect of these schedules, here are a few key points to keep in mind before reporting foreign assets and income. Note that these details are as per the rules as of FY23. 

  1.      The calendar year is relevant for reporting, while the financial year matters for taxing the income. So, don’t mix them up!

Here’s an example –

Say, you bought a stock of Microsoft in September 2022, which issued a dividend in November 2022. Take a share of another company – Alphabet – which was bought in January 2023 that gave dividends in March 2023.

For reporting assets and income for FY23, calendar Year 2022 would be applicable.

Microsoft stock: You bought the stock in September 2022. Since the purchase was made in the calendar year 2022, you would need to disclose this investment in your income tax return for the financial year 2022-2023. Even if you sell the company as of the date of filing the return, you still must report it as you held the company at least for a day in the year 2022. If the stock was bought in 2021 or before, and you own it at least for a day in 2022, you still have to report it in the ITR.

The dividend from the stock, which was received in November 2022, has to be reported in schedules as it was received in calendar year 2022. The dividend amount has to be considered for taxability in FY23 since it falls within the financial year period from April 2022 to March 2023.

 Alphabet stock: You bought the stock in January 2023. As you do not hold the stock in the calendar year 2022, you do not need to disclose this investment in the schedules.

 The dividend from Alphabet stock received in March 2023 would be considered for taxability in 2022-2023 (FY23). But it need not be disclosed in schedules as it was not received in the calendar year 2022.  

Income earned from assets held outside India will be taxable as per the provisions of the Income Tax Act, even if it is not required to be disclosed in schedules.

  1.     The schedules may ask for details such as peak balance, opening balance, closing balance, and amount debited and credited from the accounts and assets you have abroad. Keep all the details handy.
  1.     You also need to provide the tax details paid in the other country and how much you are claiming as a tax credit in India.
  1.     To report details in schedules, the rate of exchange for conversion is the telegraphic transfer buying rate of the foreign currency on the specified dates. While most of these details could be provided by the fintech platform through whom you are buying the stocks, always do your due diligence.
  1.     If your total income exceeds Rs 50 lakh per annum, you may also need to provide details of assets (Indian and foreign) held as on March 2023 again in ‘Schedule AL.’

Annexure

Definition of ‘Resident’ as per the Income Tax Act

A taxpayer will qualify as a resident of India if he/she satisfies one of the following two conditions:

  1. Stayed in India for 182 days or more in a financial year; or
  2. Stayed in India for at least 60 days in the financial year and 365 days or more in the immediately four preceding years

If you are a citizen of India or a person of Indian origin who leaves India for employment or visits India during a financial year, the conditions are a bit different and also depend if your total income from India is more or less than Rs 15 lakh in that year.

Further, if an Indian citizen is considered ‘stateless’ and earns a total income in India exceeding Rs 15 lakh during a financial year, he/she will be treated as a resident in India for that year.

For example, say you are an Indian citizen who works in a country where people are not subjected to income tax as per local tax laws (For example, UAE). If your income from India during the financial year exceeds Rs 15 lakh, you will be considered a deemed resident in India, even if you haven’t set foot in India throughout the year.

Key takeaways from this chapter

    1. Direct investing in foreign stocks is not as straightforward as investing in the Indian stock market. You need to take into account the LRS, TCS, remittance to India and disclosure rules.
    2. If you are a ‘resident’ in India, your global income (including gains and dividends from foreign stocks) is taxed in India.
    3. If you are taxed on those profits in the foreign country as well, you can claim either an exemption or get a tax credit in India on the same income while filing the income tax return.
    4. Whether an exemption or tax credit is known only by checking the double taxation avoidance agreement (DTAA) entered by India with the other country. This may need an expert’s help to .understand the rules.
    5. Do not forget to disclose your foreign assets separately in the ITR. The income tax department wants to know about all your global assets.

Disclaimer – Consult a chartered accountant (CA) before filing your returns. The content above is in the context of taxation for retail individual investors/traders only.




117 comments

  1. Ashay says:

    Thank you for the valuable information Satya Sontanam, also please elaborate

    1. How does trading FnO and intraday in US markets are taxed?
    2.How forex are taxed we know its illegal but we can trade openly and regulators are not taking any actions and also when will cross currency trade will start?

    • Satya Sonatanam says:

      Hello Ashay,

      Answering your first question- I cannot comment on how the US taxes the F&O income.
      Indian residents cannot trade in the US F&O markets. If you want to know about trading in a few US stocks in Gift City, derivative profits from those securities in foreign currency are exempt from tax.

  2. manmohan says:

    Thanks for the details. Can you please confirm if section 54F will be applicable on this long term capital gain earned by indian resident from sale of US listed shares.

    • Satya Sonatanam says:

      Hello Manmohan,
      Section 54F of the Income Tax Act allows you to claim tax benefits if long-term capital gains from ‘any’ long-term capital asset (not being a residential house) are reinvested in a residential property in India. It did not specifically exclude foreign stocks. Hence, I believe that section 54F benefit will be available on LTCG from the US listed shares as well. You can check with tax experts to confirm the same.

  3. Manish Jain says:

    Can anyone confirm if I can save LTCG (from sale of foreign shares) tax using 54F?

  4. Rahul says:

    I am a resident in India as per Income Tax Act, 1961. In case I incur short term capital loss by trading in US listed stocks, can I set it off against short term capital gain earned in trading Indian listed shares while filing my ITR.

    • Satya Sontanam says:

      Hi Rahul,

      There is no restriction on setting off short-term capital loss from investing in US shares against profit from investing in Indian shares. STCL can be set off
      against long-term or short-term capital gain.

      But you mentioned ‘trading’ in Indian stocks. In that case, your gains would be either speculative business income or non-speculative business income.

      As per tax rules, loss under head ‘Capital gains’ cannot be set off against income under other heads of income.

      Hence, I am afraid you cannot set-off loss from US shares against gain from trading in Indian shares.

    • Satya Sontanam says:

      Hi Utkarsh,

      Section 54F of the Income Tax Act allows you to claim tax benefits if long-term capital gains from ‘any’ long-term capital asset (not being a residential house) are reinvested in a residential property in India. It did not specifically exclude foreign stocks.

  5. Raj says:

    Thanks for the detailed post. I have direct investments in foreign etf, and according to this article, the ltcg on it after 36 months is 20%. Can you confirm this? I got contradictory information elsewhere that it will be the slab rate like through indian MFs.

    • Satya Sontanam says:

      Hello Raj,

      Investments through Indian mutual funds in foreign ETFs from April 1, 2023 attracts slab rate taxation irrespective of holding period. But, if you invested in foreign ETFs directly through your broking account, the taxation differs as per my understanding. LTCG is taxed at 20% with indexation benefit. Please check with your Chartered Accountant for their interpretation and what is applicable to your specific situation.

  6. Ha Lin says:

    “If you invest in foreign ETFs instead, for investments to be qualified as long-term capital gains, the period of holding will be increased to 36 months (from 24 months).”

    Thank you for the article. Could you kindly point me to the relevant original Income Tax Schedule for the above. Thanks.

  7. Vinay T M says:

    Hi team, can we avail section 54F tax exemption for shares held in a foreign listed equity to buy a residential *site/plot* in India or is it only applicable for a residential *house*?

    • Satya Sontanam says:

      Hi Vinay,

      As per our understanding, section 54F is available for investments in a residential house. If the site/plot is bought to construct a residential house, section 54F tax benefit could be available. However, we urge you to consider a tax expert’s opinion on this case.

  8. Joy says:

    Hi Team,

    Thanks for the the great consolidation. Few queries:

    1. If I gain profits by investing in stock A & I reinvest both principal + profit in stock B. I should include the profit in my STCG/LTCG in my tax report, even though I reinvested. Please correct me if I’m wrong here.
    2. It was mentioned “telegraphic transfer buying rate provided by the State Bank of India” is it mandatory to use the one provided by SBI?
    3. Say my dividend income on US stocks is Rs. x, but what I realised was Rs. 0.75x due to 25% taxation from US government. While disclosing my dividend income should I disclose Rs. x (or) Rs. 0.75x?

    • Satya Sontanam says:

      Hello Joy,

      1. Yes, you need to report your capital gains even though it is reinvested.
      2. The Income Tax Act department specifies that exchange rate in the instructions to file the income tax return.
      3. You need to disclose x. Having said that, you can claim tax credit in India.

  9. Swap says:

    Hi Satya,
    Are there any clauses when you plan to take benefit of 54f, like.
    1. Can it be availed if I already own 2-3 residential properties.
    2. Max amount if any that I can invest in the new property from th e sell of foreign equity.

    Thanks

    • Satya Sontanam says:

      Hello,

      Sec 54F tax break doesn’t apply if the taxpayer already owns more than one residential house at the time of transfer of the shares or ETF. And, where the cost of new asset exceeds ten crore rupees, the amount exceeding ten crore rupees shall not be considered for the purposes of computing the exemption.

  10. Gagan says:

    Hi, I am a resident in India as per Income Tax Act, 1961.
    I incurred long term capital loss by investing in US listed stocks.
    Can I set it off against long term capital gain earned in investments done in Indian listed shares while filing my ITR.
    And can it be also done for short term capital gain/loss?

    • Satya Sontanam says:

      Hi Gagan,

      No, it cannot be offset by investing the sale proceeds in listed Indian shares in India.

  11. Aravind says:

    In case we have Long Term Capital Gain in India, then we have an exemption of Rs 100000 per FY in India, is the same applicable for LTCG from sales of Foreign Stocks?

  12. Harshil says:

    In 2023 many brokers (example vested finance, IND money etc.) started charging commission when buying and selling US stocks.

    So, for tax purposes is the commission charged part of the share cost basis?

    For example, I bought 1 share of xyz company for $100. The broker charged me a commision of $1.

    Now, is my cost basis of that 1 share of xyz company $100 or $101?

    Thank you.

    • Satya Sontanam says:

      Hi Harshil,

      Generally, brokerage and other charges (except STT that you pay on buying/selling Indian listed shares) that you pay when buying/selling shares on the exchange can be added to the cost of share.

  13. Dheeraj says:

    Foreign ETF like Vanguard S&P 500 (VOO) etc. shall be taxed like unlisted shares (long term – 20% after 2 years) or like debt funds (All gains simply added to your income). Thanks in advance.

    • Satya Sontanam says:

      Hi Dheeraj,

      The tax rules are not very clear regarding this. However, most tax experts are taking a conservative stand that they will be treated as debt funds and the gains will be added to one’s income irrespective of the holding period. Thanks.

  14. Prateek says:

    Hi,

    Thank you for the wonderful article. Can you cover or point out to articles about ESPP and RSUs provided to an employee in India but the company is listed in a foreign country. And what declarations need to be done.

    • Satya Sontanam says:

      Hi Prateek,

      Thank you. Sure.

      Just for your understanding, ESOPs given by companies headquartered abroad will be taxed same as ESOPs given by domestic entities. The first instance of tax comes when you exercise your option. The diff between the fair value of shares and the amount you paid will be taxed in India. The second instance is at the time of sale. 24 months is the holding period to be considered as long-term capital gain. If you pay taxes on those ESOPs abroad, you can claim refund as per the DTAA agreement of India with that country.

  15. Harshil Patel says:

    I wanted to confirm that you said, that Brokerage Paid when Buying/Selling “US Shares in India” can be added to that Share’s Cost Basis/Adjusted with that Share’s Sale Value.

    Thank you Satya.

  16. Abhinav says:

    Hi,

    Can you tell me if there will be any changes in taxation rules if I invest through nseix in gift city ?

    • Satya Sontanam says:

      Hi Abhinav,
      Retail investors from India are not allowed to invest in Gift Nifty, FYI.
      For foreign investors, capital gains from trading in Gift Nifty are exempt from tax in India.

  17. Palkush says:

    Hey, can I offset long-term capital loss on US ETF (after 36 months) against long term capital gains in Indian equity Mutual Funds?

    • Satya Sontanam says:

      Hi Palkush,

      Yes, Intra-head set-off of losses of Income Tax Act allows you to set-off loss from one source with income from another source under the same head.

  18. Abhinav says:

    Hi,

    I heard that retail investors can invest in these specific 8 stocks of us stock exchange. Is this information true ? If so , let me know if the taxation will be similar.

    https://www.business-standard.com/article/markets/indian-retail-investors-can-trade-in-select-us-stocks-via-nse-ifsc-platform-122030301342_1.html

    • Karthik Rangappa says:

      I dont think any broker has this facility yet.

    • Satya Sontanam says:

      The investments will come under the LRS (Liberalised Remittance Scheme) of RBI. As per the IT Act, taxation is as it is applicable to any other foreign stock investments.

  19. Hari says:

    Do I need to disclose investments in Indian etfs that track global indices like Mon100, mafang, Masptop50, etc as foreign assets? Or they considered and taxed similar to Indian MFs and etfs?

    • Karthik Rangappa says:

      You will have to while filing your taxes. Your CA will advice you on this, please talk to the CA.

    • Satya Sontanam says:

      Hari,

      Generally, such investments are considered as foreign assets for calculating tax liability. But only those that come under LRS (Liberalised remittance scheme), ESOPs in a foreign company and assets bought when residing in a foreign country are required to be disclosed in schedule FA. Please check with your tax advisor to confirm the same.

  20. Akash says:

    I am and NRI so can i trade in indian market? And if i can so which instrument are allowed and which are not? And can you please aslo share information regarding the taxation for the same.

  21. Azam Khan says:

    Hey, I am an NRI and investing in stocks from foreign to Indian market from exisiting Indian Saving account. It is safe? If it is not appropriate then what should be the next step.

    • Satya Sontanam says:

      Hi Azam,

      You cannot use your existing savings account in India to invest in the stock market.

      You have to route your investments either through the NRE account or the NRO account. You need to convert your demat account to NRI demat account. If you are using Zerodha app, you can raise a ticket with the customer support and they will be able to guide you.

  22. Siva says:

    Hello,
    Thanks for authoring this page. Informative.
    Could you please also share information about the taxation on dividends from foreign shares ?

    Thanks in advance!

    • Satya Sontanam says:

      Hi Siva,
      Details about how dividend income from foreign stocks is taxed is also mentioned in the article.

      If the dividend income if from US stocks, it is treated as ‘income from other sources’ and taxed in India. You need to convert dividend income into Indian rupees using the exchange rate on the last day of the month prior to the month you received the dividend. It will be taxed as per your slab rate.

      Note that US deducts 25% tax when the amount is remitted to you. However, investors can claim the tax credit for the amount withheld as tax in the US.

  23. Eswar says:

    Are the tax slabs still valid, if there is minimal income in India and say 30Lakh short term capital gains from foreign stocks? Can the deductions like medical and educational can be still claimed for tax savings? (India citizen, residing in India). Thanks.

    • Satya Sontanam says:

      Hi Eswar,
      Please note that deductions such as medical costs and educations allowances are not allowed as deduction from capital gains – either short term or long term. you can deduct or take exemption from your other income like salary.

  24. Faisal says:

    May I know which exchange rate from SBI – TTBR or TTSR to be applied on the foreign equity shares purchased when my residential status was NRI for filing schedule FA in INR.

    • Satya Sontanam says:

      Hi Failsal,

      For peak balance, value of investment and foreign sourced income, one must use SBI TTBR rate

  25. VIVEK BANSAL says:

    I want to know taxation on foreign ETF (international equity) and SILVER (HDFCSILVER)

    I had traded in MAHKTECH and HNGSNGBEES, and SILVER too in Jan 2024(bought and sold both in Jan2024 month.

    Please tell me how these two categories will be taxed in ETF.

    • Satya Sontanam says:

      Hi Vivek,

      Since these are considered funds with less than 65% Indian equity, gains on them will be taxed at slab rate – irrespective of the holding period.

  26. Hareesh Reddy says:

    Hi Satya,
    Thanks for the wonderful write up for educating the tax payers in India w.r.to foreign taxation.

    Can you please help clarify on the following .

    Can we setoff Foreign STCG and LTCG ( holding > 24 months) w.r.to Indian STCG and LTGC. ie.

    1. if losses in foreign and gains in Indian market, can they be setoff in both STCG and LTCG ?

    2. if losses in foreign STGC ( holding < 24 months ), as they are directly added to income, can we add these to income from other sources ? With this taxable income will come down by loss in STGC. Can this be done ?

    3. can losses in foreign STCG and LTCG can be carry forwarded ? if yes, do we need to show it separately ( ie . without combining with carry forward losses in indian STCG and LTCG ) ? Since taxation % is different, checkingon this.

    • Satya Sontanam says:

      Hi Hareesh,

      I hope the following points answer your queries.

      1. There is no restriction on setting off loss from investing in US shares against profit from investing in Indian shares. However, remember that long-term capital losses can only be set off against long-term capital gains. Short-term capital losses can be set off against long-term and short-term capital gains.

      2. As per tax rules, loss under head ‘Capital gains’ can only be set off against capital gains.

      3. you cannot consolidate your capital gains from foreign shares with listed equity capital gains.

  27. Sreekar says:

    In above Microsoft example, If I purchase 10 shares in September, 2022 and sold 5 shares in Oct, 2022 and 5 share in Jan, 2023, then how I can declare in ITR. Could you please suggest these 2 scenarios.

    • Satya Sontanam says:

      Sreekar,

      Let’s divide this into two parts – tax liability and reporting

      For FY23

      Tax liability – shares bought and sold in 2022 will be part of your FY23 tax liability since tis happened in that particular financial year.
      Reporting in FY23 – assets held anytime in 2022 has to be disclosed. So, Microsoft shares to be disclosed even if they were sold.

      For FY24

      Tax liability – Since no sale happened in FY24, no tax liability
      Reporting – Shares bought in Jan 2023 to be reported in FY24 ITR since you held them in 2023 calendar year

  28. Sreekar says:

    In continuation of the above query, do I have to declare the 2 cases as holding or can I ignore as I sold them before March, 2023. I am providing the STCG of these transactions.

    • Satya Sontanam says:

      Hi Sreekar,

      You have to disclose if you held ‘any’ time during the calendar year 2023 (even if it is sold) in the ITR for FY 23-24

  29. Singh says:

    Why not calculate the indexed cost in foreign currency and then convert it into INR? Or alternatively, why not calculate the capital gain in foreign currency and then convert it into INR using the current exchange rate?

  30. Piyush Shekdar says:

    What is the taxation rate for foreign stocks according to the new budget declared on 23 July 2024 ?

    • Satya Sontanam says:

      Hi Piyush

      As per the proposal, LTCG will be calculated after 24 months of holding at 12.5% tax rate. The indexation benefit will not be available.
      Short term gains will be taxed at your slab rate.

  31. Vasan says:

    Hi,

    Now for FY 2024-25, Long Term Capital Gain Tax from Overseas capital gain is also 12.5% with-out indexation.
    To calculate the LTCG, for Resident Indian, after holing the investment for 24 months, which one is correct ?

    Option A:

    Sell Price in $ – Buy Price in $ = Gain in $ (To be converted to INR)

    Option B:

    Sell Price in INR – Buy Price in INR = Gain in INR

    (To convert in INR SBI-TT buying rate on the last day of the month before transaction month)

    Investment was made when I was non-resident and source of investment was overseas salary.

    Thanks

    • Satya Sontanam says:

      Hi Vasan, If you are talking about the financial year FY24-25, rules will be clearer once the Bill is passed.

      For previous years, please refer to segment – 8.3 – Tax In India – in this chapter for details. Sale and buy price to be converted to INR.

  32. Bhaskar Bhattacharjee says:

    Hello,

    I sold IBM USA shares in Sep 2023. Total sale value was INR 1,75,084. Acquisition Date of the shares was Jun 2009 and Cost of Acquisition was INR 54300 without any indexation. I purchased the shares as part of the Employee Stock Purchase Plan. What will be the LTCG tax in India?

    • Satya Sontanam says:

      Hi Bhaskar,

      LTCG at 20% with indexation benefit will be applicable to you. Please refer to segment – 8.3 – Tax In India – for details.

  33. AR says:

    When will we learn fundamental analysis?

  34. Bhaskar Bhattacharjee says:

    Thanks a lot. One more thing to check. If my acquisition dates varies from 2009 to 2014, how can I determine single acquisition date for the selling of 12 shares?

    • Satya Sontanam says:

      Hi Bhaskar,

      you know the combined INR value used to buy all 12 shares. Calculate the indexed cost value separately for all shares since it is bought in different years. Convert the sale proceeds using SBI TTBR rate. You will now have the sale value and the indexed cost in INR which gives you long-term capital gains details.

      Note that, if you are yet to sell the shares, new tax rules might be applicable once the Finance Bill 2024 is passed. New tax rules removed indexation benefit.

  35. Sarang says:

    Which exchange rate to be considered for cost of acquisition of shares which bought in 1st April 2018? Date on which shares are bought or date on which shares are sold?

    • Satya Sontanam says:

      Hi Sarang,

      You don’t have to convert your INR to dollars/other currency to calculate capital gains.

      In fact the sale proceeds in foreign currency has to be converted to INR using telegraphic transfer buying rate provided by the State Bank of India

  36. Varun says:

    Hi,
    I bought shares of a foreign entity in Aug 2019 and sold in Jan 2024. Do I have to report the LTCG in the ITR for the financial year 2023-2024 or 2024-2025.

    Thanks

    • Satya Sontanam says:

      Hi Varun,

      Since the sale happened on Jan 2024, you need to report LTCG in FY 23-24, that is AY (Assessment Year) 24-25

  37. Jasmeet says:

    Did anything change in recent budget regarding Taxation on selling Foreign equity shares for LTCG?
    I read there was a change regarding Foreign Mutual funds but couldn’t find info regarding Direct equity shares.

    • Satya Sontanam says:

      Hi Jasmeet,

      yes, Budget proposals altered the capital gains rules for investments in foreign shares as well. Now, there is no indexation benefit. Long term capital gains will be taxed at 12.5% while the short term gains will be taxed at slab rate. Holding period to qualify for LTCG is 24 months.

      These rules will come into effect from the Budget day once the Bill becomes an Act, which is going to happen soon

  38. Balaji says:

    If Foreign (USA) share had a spinoff (demerger), we receive shares of demerged company. In USA, the demerged company shares are considered free and parent company cost of acquisition is not discounted.

    In India, Demerged company acquisition cost needs to be based on parent company acquisition cost multiplied by ratio of book valve of demerged company by book value of parent company. And at same time the Parent company acquisition cost is reduced based on ratio of transfer of book value to demerged company.

    Foreign company does not declare the book value transfer to demerged company companies so it is not possibel to calculate in the indian taxation method.

    So How i should calculate the capital gains for the demerged share and the new parent share.

    Thanks

    • Satya Sontanam says:

      Hi Balaji,

      Can you please post this question on Tradingqna.com tagging @Quicko. They might be able to answer your query.

  39. Ran says:

    Hi,

    As Satya said “There is no restriction on setting off short-term capital loss from investing in US shares against profit from investing in Indian shares. “, I have reported STCG in Indian stocks and STCL in foreign stocks ( other than listed shares) in Schedule CG of the ITR and the setoff is allowed. However , when I try to report the capital loss in Schedule FSI, I get a validation error saying that negative values are not allowed . What is to be done in this case please ?

    • Satya Sontanam says:

      Hi Ran,

      I contacted Quicko for this query. Here’s their response –

      “Under FSI, we need to report details of only income arising from a source outside India and not the losses. And if any taxes were deducted on the income, you can claim a relief for the same. Just like all other capital assets, gains/losses from foreign assets will be reported under schedule CG (capital gains). The subhead will be ‘from sale of assets other than above listed items’.”

  40. Venkatesh MS says:

    sir can I claim refund of tax deducted by foreign co. and pay total tax on long term or short term capital gain and claim benefit of LTCG 1lakh in India

    • Satya Sontanam says:

      Hi Venkatesh,

      I am assuming that the foreign co withheld taxes on the dividend payment. Such dividends are taxed in India as well.

      You need to submit Form 67 to claim credit for the withholding tax paid in the US, which can be used to pay taxes in India.

  41. Madhur says:

    Hello – thank you for this article.

    I seek some clarification on the point of “If you do not want to deal with LRS, TCS, tax disclosure and remittance rules, you can also invest through Indian mutual funds investing in select international stocks and ETFs”

    Does this mean that investing in ETFs like “Motilal Oswal NASDAQ 100 ETF” which has less than 65% exposure to indian equity, but are still traded in Indian markets, are these classified as non-listed indian equities and as per latest tax rules, considered LTCG after 24 months?

    • Satya Sontanam says:

      Hi Madhur,

      Yes, I am referring to international funds offered by Indian AMCs including the one mentioned by you.

      now, coming to the second point on taxation – whether they are considered listed or unlisted is still a grey area. While the Income Tax Department mentioned in an FAQ after budget that all listed assets (which includes all ETFs) will have 12 months as holding period for LTCG, there are other interpretations too.. which suggest it is unlisted and thus 24 months holding period will be applicable. We have to wait and see if there’s going to be further clarification. Whatever may be the case, the holding period of 36 months has now come down and there’s no indexation benefit. These rules are applicable from 1st April 2025.

  42. Debashish Saha says:

    After budget 2024 , does indexation still applicable for the sale of foreign listed equities? The budget talked about properties when i heard but all over the internet its written for all asset classes . Also on 6 th aug its rolled back . Can you just clarify if its still applicable or not

    • Satya Sontanam says:

      Hi Debashish,

      As per the updates we have currently, there is no indexation benefit for foreign stocks. Long term capital gains, after 24 months will be taxed at a flat rate of 12.5%. This is applicable for sales from July 23, 2024.
      The roll back of the indexation benefit, as we understood, is only for land and building.

      We may get full clarity once the Finance bill is passed in both the houses of parliament.

  43. Gomatam Ravi says:

    I own shares in a foreign co. This company declares dividends, but reinvests my dividends in additional purchase of their shares. I doot get any remittance into my account. Am I liable for tax on dividend income every year, or only capital gains (long/short depending on duration) tax when I sell these shares?

    • Satya Sontanam says:

      Hi Ravi,

      irrespective of whether you receive the dividend amount in your hands or not, you are liable to pay tax on dividend income from stocks

  44. Micron says:

    If I have long term capital loss in domestic stocks and long term capital gain in foreign stocks, can I offset domestic ltcl with foreign ltcg?

    • Satya Sontanam says:

      Hi Micron,

      They both under the capital gains head of income. Long term capital loss can be adjusted with long term capital gains.

  45. Balaji says:

    Hi,

    Can I declare FA of 2022 in AY 2024 – 25?

    I missed to declare in AY 2023-24.

  46. Balaji says:

    Hi,

    Can I declare foreign stocks purchased in calendar year 2022 in current ITR??

    • Satya Sontanam says:

      Hi Balaji,

      If you held the stock anytime during 2023, irrespective of purchase, you are liable to show the details of the stock in your FY24 return.

  47. nj says:

    Hi Team Zerodha,
    So if I invest in any Indian ETF investing in US markets say MON100 or MAFANG. Do they count as foreign assets and do I need to separately declare them on ITR forms as such ?

    • Satya Sontanam says:

      Hi NJ

      No, if you are investing in Indian ETFs with foreign ETFs as underlying assets, you don’t need to declare them as ‘foreign assets’ separately in your ITR.

  48. Adesh jain says:

    I want to know post the July 2024 budget, how will indian ETFs or Indian mutual Funds primarily investing in foreign equity ( like motilal oswal Nasdaq 100Etf or fof) be taxed?

    • Satya Sontanam says:

      Hi Adesh,

      Different tax rules are applicable based on the purchase date and the date on which the units are redeemed.

      Assuming that the units are bought after April 1, 2023 and capital gains are accrued in this financial year (FY25), both LTCG and STCG are taxed at slab rate irrespective of the holding period. However, new tax rules are applicable for units that will be redeemed from April 1, 2025 – Holding period is 24 months; LTCG is taxed at 12.5% without indexation and STCG is taxed at slab rate.

  49. Nikhio says:

    Hi, if you have a US stock bought in before 31st Jan 2018, can you claim grandfather law for this stocks as well when filing for ltcg

    Thanks
    Nikhio

  50. Ayush says:

    Please help in sharing the information about the reporting of STCG from sale of foreign stocks in ITR.
    In which point of Schedule CG we are required to report STCG from sale of foreign stocks.

    • Satya Sontanam says:

      Hi Ayush,

      Once you open schedule CG, click on ‘From sale of assets other than all above listed items’. After that, select short-term capital gains. Here, whether to choose a(i) or a(ii) to fill the sale value is not clear. Different experts have different views; however, in most cases people go for a(ii) option. I urge you to check with your tax planner to confirm the same. Thank you!

  51. Ajay says:

    Thanks Satya Sontanam for updating this article after tax reforms in 2024.

  52. Nitesh says:

    Hi team,

    can I report income from US stocks as business income?

    • Satya Sontanam says:

      Hi Nitesh,

      It is generally treated as capital gains only.

      Even with holding Indian shares, one has to prove the intention when showing gains under the ‘business income’ head instead of capital gains. The frequency of trades and scale at which they are traded would be the key points that will be considered.

  53. Anurag Modi says:

    Hi,

    In the example given above related to sale of foreign stocks, should the income not be computed as (2500-1500) * 83.7 = 83700. LTCG = 83700*12.5%

    • Satya Sontanam says:

      Hi Anurag,

      As per the Income Tax rules, the sale consideration has to be converted to Indian rupees. What you shared is converting capital gains to Indian currency, which is not mentioned.

  54. Nikhil Devshatwar says:

    from the statement “Indian residents cannot trade in the US F&O markets”
    Can you please clarify few things?

    I have heard about rules that prohibit remittance of money for FnO trades.
    most people construe that as plain FnO trading not allowed.

    Can you confirm what amongst this is allowed/not allowed

    1 remittance of Indian funds to US and trading US equity
    2 using dollar proceeds from salaried RSUs for trading US equity (note there is no remittance here)

    3 remittance of Indian funds to US and trading US FnO (I believe most people say this is not allowed)
    4 using dollar proceeds from salaried RSUs for trading US FnO (this is the item with max confusion)

    All of these questions are for people residing in India, with Indian salary but getting RSUs in US Demat through their employer’s equity program.
    Appreciate your time on this.

    • Satya Sontanam says:

      Hi Nikhil,

      I am afraid I will not be able to answer your queries. We will try to find answers. Nevertheless, we request you to check with your broker/platformfor specific compliance related queries.

    • Satya Sontanam says:

      Hi Nikhil,

      We tried to get answers for your query by talking to those who understand FEMA regulations. Below are the answers we gather –

      1. Allowed. 2. Allowed, if money has come in US bank account and investment within 180 days of receipt of funds. 3. Not allowed. 4. RSUs when India Citizen, not allowed. But if RSU’s when the person was a NRI or working in US at that time, then allowed.

      Please note that these answers are subject to interpretation and the rules keep changing too. So, please keep an eye out.

  55. manish agarwala says:

    hi

    I bought US stocks when I was resident of India in 2022 from my Indian INR account converting to USD. At the time of sale, I have become Non resident . The sale proceeds will be transferred to same Indian INR account . As I am NRI now, will gain from the sale will be subject to tax liability or it will come under my non – taxable global income.

    • Satya Sontanam says:

      Hi Manish,

      As I check with our NRI team, it is understood that once your status changes to NRI, the onus is on the individual to convert the resident savings account to NRI-specific account (NRO). Will get back to you on the tax rules.

  56. Rajat says:

    Hi Satya,

    Can you please help with how people that are NRIs invest in Indian Equity? What are taxation rules?

  57. manish agarwala says:

    Hi

    Thanks for the reply. I will wait for update on tax implication

    • Satya Sontanam says:

      Hi Manish,

      This is the answer from Quicko, a tax filing platform – As the income is received in an Indian Bank account, the capital gains will be taxable. The tax rate for foreign shares is 12.5% for long term gains and slab rate for short term gains. The holding period to determine the type of gains will be 24 months. Moreover, if any tax was withheld on this income, they can claim a credit for the same while filing ITR in India. –

  58. narendra says:

    hi,

    Is the US capital gain calculated on each stock separately or on the total transaction.

    for e.g
    If I make a profit of $100 on stock 1 and loss of $50 on stock 2.

    Is tax paid on agregate profit of 50 .
    Can I set of the loss on stick 2 against profit on stock 1. Both are held for more than 24 months.

    • Satya Sontanam says:

      Hi Narendra,

      Assuming, both the stocks are sold in the same financial year, yes, intra-head set-off provisions of Income Tax Act allows you to set-off loss from one source with income from another source under the same head – capital gains here. Long-term capital losses can be set off against long-term capital gains.

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