Tax Implications of Investing in US Stocks for Indians: A Comprehensive Guide [2025]

US Stocks have witnessed major popularity in recent days. With brands like Microsoft, Apple, and Amazon winning the hearts of Indians — the younger generation is always on the lookout to invest in companies they connect with more. Let's say you're a big iPhone enthusiast and you believe iPhones are never going to get out of trend. So, you will always want to own a piece of that company. A true sense of ownership is what the younger generation seeks out of any investment.

But there is one problem — although most investors starting with US Stocks aren't very familiar with applicability and compliance on returns earned from such global investments.

As an Indian resident keen on investing in US Stocks, one might wonder how their US stocks will be taxed in India, if there are any exemptions, the tax implications of investing in foreign stocks, whether capital gains arising from US stocks get taxed in both the US and India, and more. So, let us break down the tax implications of US Stocks and make your investment journey easier.

Double Taxation Avoidance Agreement

Before diving into the tax implications of the earnings you stand to make, you must understand the purpose of the DTAA tax treaty. This treaty has been signed between India and over 85 countries such that taxpayers can avoid having to pay taxes twice on the income they earn in the source country and the residence country.

Understanding the Objectives of Double Taxation Avoidance Agreement

The main goal of these agreements is to ensure that you don't get taxed twice on the same money. If you live in one country but earn money in another, without these agreements, both countries might want their share of taxes from your earnings.

These agreements also make international business more attractive by reducing the tax burden. When companies and individuals know they won't face double taxation, they're more likely to invest across borders.

Another significant benefit is clarity. DTAAs spell out exactly how different types of income will be taxed, which gives everyone involved a clear understanding of what to expect.

They're also designed to combat tax cheating. The agreements allow tax authorities in different countries to share information with each other, making it harder for people to hide money or evade taxes.

Tax implications for Indian Residents Investing in US Stocks

When an Indian investor decides purchasing international stocks, one of the primary concerns that crosses his mind is the tax on selling foreign shares in India. Hence, it's important for Indians investing in US stocks from within India to be aware that any dividends or profits obtained from these investments are subject to taxation according to Indian tax regulations. Here is an overview of all you need to know.

Taxes Imposed on Dividends Drawn

When an Indian resident invests in a US stock that pays dividends, the dividend income is treated as taxable income according to the Indian Income Tax Act. Indian investors are subject to a flat tax rate of 25% on earnings from dividends of US stocks, which is comparatively lower than the tax treatment for other foreign investors due to the US-India tax treaty. 

US companies withhold this dividend tax, deducting 25% before paying the remaining 75% as dividends to the investor.

If the investor chooses to reinvest the dividend, it is added to their income and taxed at the regular income tax slab rates. The Double Tax Avoidance Agreement (DTAA) allows for the adjustment of US withholding tax against any tax liability in India, providing relief to Indian investors.

Let's say you invest in Google stocks, for which you receive a dividend income of $1,000. The company retains 25% or $250 out of this amount as tax. Thus, the net dividend comes up to $750.

During the financial year, you declare an income of $2,000 through an income tax return. This income will be taxed as per the applicable income tax slab. On your total taxable income, you can claim a credit for the dividend retained or $250 being tax withheld by Google. Hence, out of the total tax payable by you, $250 will be deducted, and the balance will be taxable.

Capital Gains Tax

Capital Gains Tax is a type of tax on stock trading in US. When we earn capital gains, there is no tax applicable in the US. This means, if you buy shares worth say $500 and sell them for say $1000, there will be no tax liability in the US on the capital gain of $500. However, you will be liable for taxation on this gain in India.

Calculating Capital Gains on Foreign Shares:

Capital gains are taxed based on two categories:

Tax on Long-Term Capital Gains (LTCG)

This applies if you’re in for the long haul and have held stocks for more than 24 months before selling them and drawing capital gains. Here, you will need to pay the US capital gains tax at a rate of 20 percent in addition to applicable fees and surcharges. For instance, I bought shares worth $100 and sold them at $150 ($50 profit), so my tax liability will be $10.

Tax on Short-Term Capital Gains (STCG)

If you’ve held stocks for a period that falls below 24 months before selling them and earning capital gains, your gains will be added under your taxable income and taxed in accordance with your income tax slab. Continuing from the above example, if I sold the shares at $150, then the profit will be added to your current income and taxed as per the slabs.

Example:

Imagine you invest $300 in some company shares. If you hold onto them for 30 months before selling them at $700, you've made $400 in profit. Since you kept those shares longer than two years, that's considered a long-term capital gain. The government will take about $60 in taxes (plus some additional cess and surcharges).

On the flip side, let's say you make the same investment ($300 in shares) but decide to sell after just 20 months when they're worth $700. You've still made that same $400 profit, but now it's classified as a short-term capital gain because you sold before the two-year mark. In this case, that $300 gets added to your annual income, and you'll pay taxes on it according to your income tax bracket.

To summarise:

Conclusion

US stocks have gained popularity among Indian investors, especially the younger generation who seek a sense of ownership in companies they connect with. Indian investors are subject to a flat tax rate of 25% on dividends from US stocks, with the tax withheld by US companies. Before investing to know more, understand how to the US stock market works. 

Reinvested dividends are added to the investor's income and taxed accordingly. Capital gains from selling stocks are taxed as either long-term or short-term gains.

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Frequently Asked Questions

Do I have to pay tax on US stocks?

Yes, if you are investing in US stocks from India.

What are the tax implications of investing in US stocks?

Long-Term Capital Gains: This applies if you’ve held stocks for more than 24 months — a rate of 20% in addition to applicable fees & surcharges.

Short-Term Capital Gains: This applies if you’ve held stocks for less than 24 months before selling them and earning capital gains. Such gains will be added under your taxable income and taxed as per your income tax slab.

Are the profits/incomes from US Stocks taxable in India?

Yes, the profits from US Stocks will be taxable in both US and India, subject to US-India DTAA.

Can I claim the tax paid on US on profits/incomes from US Stocks?

Yes, Form 67 is to be filed with the Indian tax department for claiming the credit for tax paid in US on profits/incomes from US stocks.