Individual resident investors are increasingly exploring foreign share markets to enhance profitability and broaden their investment portfolios. Investing in foreign shares provides access to global markets and the potential for increased returns. However, investors need to consider factors such as geopolitical risks, currency fluctuations, and tax implications before making investment decisions. Taxes are a crucial factor to consider as they can have an impact on your trading frequency and overall profitability.
Tax in India on Income from Foreign Securities
When a taxpayer has income from foreign investments, the tax treatment in India would depend upon the residential status. The taxpayer should determine residential status based on the number of days of their stay in India during the financial year and in the previous years too. Below is the tax treatment of income from foreign investments based on the residential status:
| Residential Status | Meaning | Tax Treatment |
| Resident in India | Resident and Ordinarily Resident (ROR) | Global Income taxable in India |
| Not Ordinary Resident | Resident but Not Ordinarily Resident (RNOR) | * Taxable if foreign income is received in India * Taxable if foreign income is accrued in India from a business or profession controlled in India |
| Non-Resident | Non-Resident in India (NRI) |
Income Heads for Trading in Foreign Securities
Capital Gains from Foreign Shares
Income from the sale of foreign shares is a Capital Gains Income as per the Income Tax Act. Since, foreign Shares are not listed on any recognized stock exchange in India the period of holding will be considered as 24 months.
- Long-Term Capital Gain (LTCG): If an investor sells an unlisted stock held for more than 24 months, gain or loss on such sales is a Long Term Capital Gain (LTCG) or Long Term Capital Loss (LTCL).
- Short-Term Capital Gain (STCG): If an investor sells an unlisted stock held for up to 24 months, the gain or loss on such sale is a Short-Term Capital Gain (STCG) or Short-Term Capital Loss (STCL).
Capital Gains from Global Mutual Funds
If a taxpayer has invested in foreign ETFs or global funds with exposure to foreign stocks, gains from redeeming such mutual fund units are considered capital gains.
Here, if the funds have invested less than 35% in domestic company equities, taxation will be at slab rates for the entire gain amount.
If the funds have invested 65% or more in Indian equities, they will be treated similarly to equity-oriented funds. In this scenario, the holding period will be 12 months. Hence, if the funds are sold within 12 months of investment, they will be considered short-term capital gains and taxed at 20%. However, if the funds are sold after 12 months, gains or losses will be classified as long-term capital gains, and gains exceeding INR 1.25 lakh will be taxed at 12.5%.
Other Income from Foreign Shares
- Dividend Income – A dividend received from a Foreign Company is taxable income under the head Income From Other Sources at slab rates. If the assessee incurs the expense of remuneration or commission for the purpose of earning the dividend, he/she can claim it as an expense from dividend income.
Income Tax on Foreign Shares and securities
Income Tax on Trading in shares of foreign countries is similar to the tax treatment of other capital assets.
| Type of Security | Period of Holding | Capital Gain | Tax Rate |
| Foreign Share | More than 24 months | Long-Term Capital Gain (LTCG) u/s 112 | 12.5% without Indexation |
| Foreign Share | Up to 24 months | Short Term Capital Gain (STCG) | Slab Rates |
The rate of exchange for the calculation of capital gains in rupees shall be the telegraphic transfer buying rate (TTBR) of such currency on the last day of the month immediately preceding the month in which the taxpayer transfers the capital asset.
Income Tax on Dividend Income
The dividend incomes received from foreign shares or securities will be taxable at the slab rates in India. The taxpayer has to disclose this income under the head Income from Other Sources in ITR. Moreover, this income will be taxable in the source countries also, hence there might be double taxation on the same income, to avoid this, the Indian government has entered into DTAA.
DTAA (Double Taxation Avoidance Agreement)
Whenever a taxpayer earns income from outside India, such foreign country might also levy and collect taxes on that income. In this case, the taxpayer will end up paying taxes twice, once in a source country i.e. in the country where he had generated income, and the second time in the resident country i.e. the country of which they are resident. Now, here the government had provided a relaxation from such double taxation by agreeing with some countries. Under the double taxation avoidance agreement, there are provisions for providing concessional tax rates.
Carry Forward Loss for Sale of Foreign Shares
- The investor can set off Short Term Capital Loss (STCL) against both Short Term Capital Gain (STCG) and Long Term Capital Gain (LTCG). They can carry forward the remaining loss for 8 years and set off against STCG and LTCG.
- The investor can set off Long Term Capital Loss (LTCL) against Long Term Capital Gain (LTCG) only. They can carry forward the remaining loss for 8 years and set off against LTCG only.
Example
Riya has invested in 20 shares of Apple Inc. on 01/04/2023 at USD 170. Further, she received dividends as per the following:
On 30/06/2023 – USD 50
On 29/09/2023 – USD 75
On 31/12/2023 – USD 90
Further, on 05/02/2024 she sold all 20 shares at USD 190.
The TTBR on such dates were as below:
| Dates | TTBR |
| 01/04/2023 | INR 82 |
| 30/06/2023 | INR 83 |
| 29/09/2023 | INR 84 |
| 31/12/2023 | INR 80 |
| 05/02/2024 | INR 90 |
Firstly let’s calculate dividend income earned from the shares of Apple Inc. for FY 2023-24 which will be reported under the head Income from Other Sources while filing ITR.
| Dates | Dividend in USD | Conversion rate | Dividend in INR |
| 30/06/2023 | 50 | 83 | 4,150 |
| 29/09/2023 | 75 | 84 | 6,300 |
| 31/12/2023 | 90 | 80 | 7,200 |
Hence she has to report a total dividend of INR 17,650 under the head Income from Other Sources while filing ITR.
Now, let’s calculate the capital gains from sales of shares:
Purchase value = USD 170 * 20 shares = USD 3,400
Sales value = USD 190 * 20 shares = USD 3,800
Capital Gains in USD = 3,800 – 3,400 = USD 400
Capital Gains in INR = USD 400 * INR 90 (conversion rate) = INR 36,000
Moreover, if any taxes were withheld on her dividend income in the US then as per DTAA between India and USA she can claim the credit of the same by filing form 67.
Disclosure in ITR
The taxpayer needs to report income from investments in the US market in the Income Tax Return in India.
- The income received as a dividend needs to be reported under the schedule Income from other sources.
- Capital Gains or losses from the sale of foreign shares or other securities need to be reported under schedule capital gains in ITR.
- Investments held by the taxpayer in the foreign share market are to be disclosed under Schedule FA i.e. Foreign Assets.
- To claim a foreign tax credit, taxes paid outside India must be reported in Schedule TR for tax relief.
- The taxpayer must file Form 67 with the ITR to claim a foreign tax credit.
FAQs
The investor should file ITR-2 or ITR-3 and report income from the sale of Foreign Shares as Capital Gains. Additionally, the holdings of foreign shares need to be reported under Schedule FA i.e. Schedule Foreign Assets of the ITR.
There are two methods to claim DTAA tax relief – the exemption method and the tax credit method.
– under the exemption method, income is taxable in one country and exempt in another.
– In the tax credit method, the income is taxable in both countries, and tax relief is available in the country of residence.
No, If you are an NRI you need not pay any tax in India on Income from Investment in US Equity Market in India.
It shall be the TTBR rate i.e. telegraphic transfer buying rate of such currency as on the last day of the previous month in which the capital asset is transferred.
Hey @Nihal ,
Since you hold the status of a resident, your global income is taxable. Thus, you must report the income on sale of foreign shares and pay tax on it at applicable rates. Check out our Learn Center resource for more information about NRO and NRE Accounts- Guide: Income Tax for NRO and NRE Accounts
Hey @Nireka
Indian investors can invest in US stocks from India subject to RBI’s LRS guidelines. There may some RBI restrictions to hedge the foreign stock positions. For tax implications, any dividends income from foreign stock will be taxed in India subject to India- USA DTAA, as dividend is taxed @25% in USA.
Any capital gain from sale of foreign stocks are also taxed in India. When foreign stocks are sold within 24 months then it will be treated as short term, other wise long term. In case of short term gain, slab rates will apply and in case of long term gain, 20% rate with indexation or 10% without indexation will apply. Moreover, investors can claim foreign tax credits to avoid double taxation.
Can I claim credit of the tax deducted in the USA on income from the sale of shares of my company (ESOP)?
Hi @Dixita
If you are a resident in the financial year, you must report such foreign income in the ITR in India. As per the DTAA agreement between India and the USA, the same income is not taxable in both countries. Thus, if you have paid tax on such income in USA, you can claim the credit of such tax paid by filing Form 67. Tax relief shall be lower of tax paid in USA or tax payable in India and can be reduced from total tax liability in India.
You can refer to the below article for detailed provision of DTAA between India and the USA: DTAA between India and USA - Learn by Quicko
https://learn.quicko.com/form-67-claiming-foreign-tax-credit
Hope this helps
Hey @Vivekramaiah, you shall soon receive a call from our team for better understanding your situation. I would also like to advise you to not share any personal details on the public forum for privacy reasons.
Hi, I am filing ITR through Quicko website, but I am unable to find a Scheduled FA section to specify the Foreign Listed Shares that I am holding. Also invested through IndMoney in some of the foreign listed company, do I need to list those as well.
Hey, currently we do not support reporting foreign assets on our platform. However, it is in our pipeline and we will keep you posted regarding the same
Hi,
I got some profit by selling shares from US equity in groww app. Where should I mention details about this when filing tax in quicko portal? Any sample screenshot on where to fill would be helpful. Also, what should be the equivalent INR rate for filing.
For US stock dividends, tax is already deducted in US. Where should I mention about these tax credits in quicko portal. A screenshot will be helpful.
Hey @pushpasooraj presently we do not support reporting of foreign shares on our platform. However, it is in our pipeline and we will keep you posted regarding the same