Investing in US markets has become popular among Indian residents thanks to platforms offering direct equity, ETFs, and mutual funds abroad. But how are these investments taxed in India? Let’s break it down in a simple Q&A style with practical insights.
1. How are investments made in the US market treated for taxation in India?
👉 Any investment in US-listed equity, ETFs, or debt is treated as a capital asset under Indian Income Tax law.
• If you sell them at a profit, the gain is taxable in India, just like domestic shares.
• If you earn dividends, they are also taxable (though credit for US taxes paid can be claimed under the India–US DTAA).
💡 Example:
Ravi buys Apple shares worth $5,000. After 2 years, he sells them for $7,000. The $2,000 gain is taxable in India as capital gains.
2. What is the difference between short-term and long-term capital gains on US stocks?
👉 For Indian residents:
• Held < 24 months → Short-Term Capital Gains (STCG) taxed as per your income tax slab.
• Held ≥ 24 months → Long-Term Capital Gains (LTCG) taxed at 12.5% flat (without indexation).
💡 Example:
• If you sell Tesla shares in 12 months with ₹1 lakh profit → Taxed as per your slab (say 30%).
• If you sell the same after 30 months → LTCG at 12.5% only.
3. What is the Liberalised Remittance Scheme (LRS) and how does it apply?
👉 Under LRS, Indian residents can remit up to USD 2.50 lakh per year abroad for investments.
• All such transfers attract TCS (Tax Collected at Source) at the bank level.
• You can claim this TCS as a credit in your ITR.
💡 Quick Insight: Even if you invest just ₹50,000 in US ETFs, your bank deducts TCS. This isn’t extra tax—it gets adjusted in your final tax return.
4. Are there exemptions for long-term capital gains on US stocks?
👉 Yes. You may claim Section 54F exemption if you reinvest the net sale proceeds into a residential house property in India within the prescribed time.
💡 Example:
Anita sells US stocks and earns ₹15 lakh LTCG. She invests the proceeds in a flat in Pune within 2 years → No LTCG tax under Section 54F.
5. Do I need to disclose US investments in my Indian ITR?
👉 Absolutely. If you hold any foreign shares, ETFs, or mutual funds, you must declare them in the FA (Foreign Assets) Schedule of ITR-2/ITR-3.
• Assets should be reported as of December 31st of the relevant year.
⚠️ Non-disclosure can attract strict penalties under the Black Money Act, 2015.
6. What happens if I don’t disclose these foreign assets?
👉 Consequences include:
• Penalty up to ₹10 lakh per year of non-disclosure.
• Prosecution under the Black Money Act.
👉 In short, never ignore disclosure rules.
7. Do I need to pay advance tax on these gains?
👉 Yes. Capital gains on US shares are part of your total taxable income. If your tax liability exceeds ₹10,000 in a year, you must pay advance tax in 4 installments.
💡 Tip: If you expect large gains in one quarter, pay advance tax immediately to avoid interest under Sections 234B/234C.
8. Where can I get expert help?
👉 Taxation of foreign investments is a specialised area. A Chartered Accountant experienced in NRI taxation, foreign assets disclosure, and DTAA provisions can help you:
• Compute gains correctly,
• Claim exemptions,
• Avoid penalties, and
• File accurate ITRs.
✅ Key Takeaways
• US shares = Capital assets → taxable in India.
• < 24 months = STCG (slab rate), ≥ 24 months = LTCG (12.5%).
• LRS allows up to $2.5 lakh per year → subject to TCS.
• Section 54F exemption available if reinvested in house property.
• Foreign assets must be disclosed in ITR.
• Non-disclosure = hefty penalty & prosecution.
• Advance tax applies on such gains.
💡 Final Insight: Investing globally is smart diversification. But don’t ignore Indian tax laws—compliance ensures peace of mind and avoids costly disputes.