Tax Implications of Investing in Foreign Stocks for Indians

Introduction

Global investing is no longer limited to high-net-worth individuals. With platforms like Vested, INDMoney, and Groww offering easy access, many Indians are adding U.S. tech giants like Apple and Tesla to their portfolios. But do you know the tax implications of investing in foreign stocks?
As seasoned Chartered Accountants in Mumbai, Makwana Sweta & Associates break down what you must know about tax on foreign stocks for Indians — from remittance rules to capital gains and tax credits.

1. How Can Indians Invest in Foreign Stocks?

Indian residents can invest in foreign equities through:

• Liberalised Remittance Scheme (LRS) – Allows up to USD 250,000 per financial year per individual
• International platforms like INDmoney, Vested, or through banks’ global investment accounts

Tip: Always keep track of your remittance amount under LRS to avoid crossing the limit.

2. Taxability of Foreign Investments in India

Income from foreign stock investments is taxed based on two components:

A. Capital Gains

• Short-Term Capital Gains (STCG): If sold within 24 months
  • Taxed at slab rates applicable to your income
• Long-Term Capital Gains (LTCG): If held for more than 24 months
  • Taxed at 20% with indexation benefit

B. Dividends

• Taxed at slab rate as “Income from Other Sources”
• Subject to foreign tax withholding (e.g., U.S. deducts 25%)

Claim foreign tax credit under Section 90/91 to avoid double taxation.

3. Tax Deducted at Source (TCS) under LRS

As per Budget 2023 and applicable in FY 2024-25:

• 20% TCS is applicable on foreign remittances above ₹7 lakh/year (for investments abroad)
• TCS is not a tax but a tax collected in advance — it can be claimed as a refund or adjusted while filing ITR

Example: If you invest ₹10 lakh in U.S. stocks via LRS, ₹2 lakh will be collected upfront as TCS.

You can claim this TCS while filing your income tax return (ITR) under “Taxes Paid.”

4. Reporting Requirements in ITR

When investing in foreign stocks, you must disclose your holdings in your Income Tax Return (ITR). This falls under:

• Schedule FA (Foreign Assets): Includes foreign bank accounts, stocks, ESOPs, etc.
• Schedule FSI (Foreign Source Income): If you earned dividends or sold stocks
• Schedule TR (Tax Relief): For claiming foreign tax credit

Non-reporting may attract hefty penalties under the Black Money Act.

5. Double Taxation Avoidance Agreements (DTAA)

India has DTAA with countries like the U.S., UK, and many others.

• If you’ve paid tax in a foreign country (say 25% dividend tax in the U.S.), you can claim a tax credit in India.
• DTAA ensures you don’t pay tax twice on the same income.

Use Form 67 before filing ITR to claim the tax credit.

6. ESOPs and RSUs from Foreign Companies

If you are an Indian employee receiving ESOPs or RSUs from foreign firms:

• Taxed as perquisite at the time of exercise (part of salary)
• On sale of shares, capital gains apply

Both events must be reported in ITR.

Many Indians working in MNCs miss declaring this — seek guidance from a CA in Mumbai or your city to ensure full compliance.

7. Key Documents to Maintain

Keep the following handy for accurate tax filing:

• Contract notes of purchase/sale
• Proof of dividend income
• Foreign tax withholding certificates (Form 1042-S for U.S.)
• Remittance proof (bank statements, LRS declaration)
• Form 67 (if claiming foreign tax credit)

A professional Tax Consultant in Mumbai can help with compiling and filing these documents.

8. Is There Wealth Tax on Foreign Stocks?

No. India abolished Wealth Tax in 2015. However, all foreign assets must be declared annually in ITR if you’re a resident Indian.

9. What NRIs Need to Know

NRIs are taxed only on income sourced in India. So, foreign investments outside India (like in the U.S.) are not taxable in India unless income is repatriated or brought into India.

10. Penalties for Non-Compliance

Failure to report foreign assets or income may attract:

• Penalty of ₹10 lakh per year
• Prosecution under the Black Money Act
• Scrutiny notices from the Income Tax Department

Final Thoughts

Foreign investing is an exciting way to diversify your portfolio. However, don’t overlook the tax and compliance aspects. A few wrong steps in tax on foreign stocks for Indians can result in notices, penalties, or worse.

Need help managing your foreign investments?

Makwana Sweta & Associates, expert Chartered Accountants in Mumbai, offer reliable CA Services in Mumbai and PAN India — helping you stay compliant, optimise taxes, and grow wealth globally.

Useful Links

• Outbound Link: Income Tax e-Filing Portal – DTAA & Foreign Tax Credit
• Inbound Link: Our International Tax Services