Looking to invest in Facebook, Amazon and Apple shares from India — These are the taxes you may have to pay
- You can invest in
US stockseither through domestic brokers like Motilal Oswal, foreign brokers or through investment platforms like Groww, Upstox etc.
- Very soon, NSE will offer investors to trade in 50 US stocks through GIFT city, an international financial services centre (IFSC).
- Taxation on US stocks is simple as taxes are charged only on dividends and capital gains on the stock sale.
In fact, with the growing number of investment platforms, it has become even more convenient to have an exposure in US stocks.
For those who don’t know, there are two ways to invest in US stocks — one option is directly through a domestic broker like Motilal Oswal, HDFC Securities or through a foreign broker. And now you can even invest through apps like Groww.
AdvertisementAnother way through which one can have exposure to US stocks without putting much effort on stock selection is through mutual funds and exchange traded funds (ETFs). An ETF is a basket of securities, shares of which are sold on an exchange.
Very soon, there will be a third option, as this week the NSE announced that it will offer investors to trade in 50 US stocks through GIFT city, an international financial services centre (IFSC).
Now the main question is what tax would be imposed on your profits?
It is very simple. There are two types of tax implications — tax on dividends and capital gains tax.
Tax on dividends
Similar to Indian stock market, when you invest in the US stock market you might receive dividends from companies. This is income for an investor, which would be taxed at 25%. So if a company announced a dividend of $100, you will receive $75.
The tax rate is comparatively lower for Indians compared to other foreign investors investing in the US as there is a tax treaty between the US and India.
However, the dividend received in cash or reinvested again will be taxed in India at your applicable tax slab. However, due to the double tax avoidance agreement (DTAA), the tax withheld in the US can be set off against the tax liability in India.
Offsetting means balancing the money that you are owed with money that you owe.
For example: You have received a $100 dividend from US stocks in FY21, out of which 25% gets taxed by the US tax department on dividend. This means you have a total $75 income. Now, you have to pay tax on a $100 dividend in India and say you come under a 30% tax slab. Now your tax liability in India is for ₹7,400 assuming dollar rate is ₹74.
And remember you have already paid 25% tax in the US which is ₹1,850. So now since you have already paid ₹1,850 as tax in the US you can claim that amount and just pay ₹370.
Capital Gains Tax
Firstly, capital gain is the profit one earns on stocks. Secondly, there is an additional benefit in investing in the US as they do not charge capital gains tax on Indians.
AdvertisementFor example: If you had bought shares of $100 and sold them at $400 then you will not be charged tax on capital gains of $300.
However, here’s the twist, you will be liable to pay tax on this gain in India.
Here there are two types of tax — Long term capital gain and short term capital gain.
AdvertisementLong Term Capital Gains (LTCG)
LTCG of 20% is charged when you hold the stock for more than 24 months plus applicable fees and surcharges.
Short Term Capital Gains (STCG)
On the other hand, if you hold the stocks for less than 24 months then you will be charged tax according to your income tax slab.
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