Navigating Indian Income Tax Filing for US Stock Investments via Fi Money

Navigating Indian Income Tax Filing for US Stock Investments via Fi Money

Investing in US stocks can be a great way to diversify your portfolio and boost your returns. But it also means you'll need to understand the tax implications and make sure you're filing your income tax returns correctly in India. If you're using Fi Money, we've got a detailed guide to help you through the process of filing your taxes for your US stock investments.

US Stocks: Understanding Key Tax Implications 

Before diving into the specifics of the filing process, it's essential to understand the key tax components involved:

1. Dividend Income 
   Dividends from US Stocks are taxable in India. The US typically deducts a 25% tax at source, which can be claimed as a foreign tax credit in India.
2. Capital Gains
   Profits from selling US stocks are taxed based on the holding period:
   1. Short-Term Capital Gains (STCG): If held for less than 24 months, these are added to your income and taxed at your applicable income tax slab rate.
   2. Long-Term Capital Gains (LTCG): If held for more than 24 months, these are taxed at 20% with the benefit of indexation.

Step-by-Step Guide to Filing Income Tax for US Stock Investments

Step 1: Gather necessary documents

Before you begin filing, make sure you have all the necessary documents. You should have received an email containing the relevant documents. If you didn't get the email, you can also access the documents through the app here.

1. Capital gains
2. Schedule FA - Foreign Assets 
   Mentions the foreign assets you held in the calendar year ending before the financial year end (e.g. foreign assets held from Jan 2023 to Dec 2023 for the financial year ending March 2024)
3. Schedule FSI - Foreign Source of Income 
   Income through various means (like Capital Gains, dividends, or interest) earned from a foreign source 
4. Schedule TR - Tax Relief
   If you have paid tax on the income in a foreign country and you’re eligible for a tax relief in India
5. Form 67 
   Form to claim foreign tax credit
6. Form 1042s 
   Proof of income generated by the foreign entity

Step 1b: Prepare the documents:

If you have dividend income, you will need to fill in the details in the following documents

1. Schedule FSI 
   1. Tax payable on such income in India - based on income tax slab
   2. Tax relief available in India - lower of the above or tax paid in the US
2. Schedule TR 
   1. Total tax relief available - same as the tax relief available in India in Schedule FSI
3. Form 67
   1. Tax payable on such income in India - same as tax payable on such income in India in Schedule FSI
   2. Amount - same as tax relief available in India in Schedule FSI

Step 2: Determine your ITR form

If you're investing in US Stocks, you'll generally need to use the ITR-2 form to file your income tax. This form is for individuals and Hindu Undivided Families (HUFs) who don’t have income from business or profession. It's suitable if you have income from salary or pension, own more than one house, have capital gains, or income from foreign assets. Be sure to select the option “Taxable income is more than the basic exemption limit.”

Step 3: Fill out relevant schedules in ITR-2

In the ITR-2 form, you need to fill out several schedules. Here's a breakdown of the key schedules relevant to US Stock investments:

1. Income tab
   1. Schedule Capital Gains: Report short-term and long-term capital gains from the sale of US stocks by choosing “From Sale of Assets other than all the above listed items” when details of the capital assets sold are asked and then enter the following in relevant section 
      1. STCG: Add the gains under the short-term capital gains section.
      2. LTCG: Add the gains under the long-term capital gains section, and calculate the tax considering the indexation benefit.
   2. Schedule OS (Income from Other Sources): Include dividend income from US stocks here.
   3. Schedule FSI (Foreign Source Income): Report foreign source income and details of foreign tax paid. The tax identification number will be your passport number.
   4. Schedule TR (Tax Relief): Claim relief for taxes paid in the US. Report the foreign tax credit here, using details from Form 67.
2. Others tab
   1. Schedule FA (Foreign Assets): Provide details of your US Stock investments.
      1. Nature of the asset (US Stocks)
      2. Details of the financial institution (brokerage firm)
      3. Peak value during the year

Step 4: File Form 67

To claim the foreign tax credit for the US tax deducted on your dividends, you need to file Form 67 before submitting your ITR. Make sure to attach the necessary proof, like Form 1042-S, to claim this credit.

Step 5: Complete and submit your ITR

After entering all required information:

1. Review your ITR: Don’t forget to double-check your documents.
2. Verify and submit: Use the Income Tax Department’s e-filing portal to submit your ITR. Make sure to e-verify your return using methods like Aadhaar OTP, net banking, or a physical verification process.

Additional Tips for Efficient Tax Filing

1. Maintain accurate records
   Keep detailed and organised records of all transactions, dividends, and taxes paid.
2. Leverage Fi Money
   Utilise Fi Money’s tax documents for efficient tax filing
3. Consult a tax professional
   If you encounter complexities or uncertainties, consulting a tax professional can ensure compliance and help you optimise your tax filings.

Conclusion

Navigating your way through filing your income tax for your US Stocks in India can be quite straightforward with the right guidance. By understanding key tax implications and following our guide, you can master meeting your tax obligations. The Fi app simplifies the process by providing you with the features that will take you towards efficient tax filing. With these tools, you can capitalise on the growth of US Stocks while staying compliant with Indian tax laws.