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Efficiently Manage Taxation of Foreign Stock Market Profits in India
Knowing the taxation of your investments is crucial when investing in shares. Here's what you need to understand before investing in foreign stocks from India.
Usually, profits from selling foreign stocks are taxed as capital gains for Indian investors. For taxation, foreign stocks are considered the same as unlisted equity shares in India.
Gains from Foreign Stock Shares –
Tax on Foreign Share Sales:
The tax for selling foreign stocks depends on the holding duration. More than 24 months leads to a long-term capital gain (LTCG). Otherwise, it's a short-term capital gain (STCG).
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- Long-term gains from foreign stock sales attract a 20% tax, with a surcharge, a health, education cess, and indexation benefit.
- Short-term gains are part of the current income and taxed based on the investor's slab rate.
Tax on Global Mutual Funds:
The tax on global funds depends on their exposure to foreign stocks. If the Indian equity stock is more than 65%, it is taxed like equity-oriented funds.
Short-term gains on funds held for less than a year are taxed at 15% plus cess. If held for more than a year, the tax is 10% on gains above Rs.1 lakh per year.
Global funds with less than 65% Indian equity are non-equity funds. Short-term gains on such funds held for less than three years are taxed at the normal slab rate. If held for more than three years, the tax is 20% with the indexation benefit.
Foreign Shares Dividend Tax:
Dividends on such holdings are taxed at a 25% flat rate.
India has a Double Tax Avoidance Agreement (DTAA) with over 95 countries, allowing the claim of tax credits in case of double taxation. DTAA offers relief via exemption and tax credit methods.
If taxes have been paid in the foreign country, tax credits can be claimed as per the DTAA between India and that country. If no DTAA exists, unilateral relief may be available under Section 91 of the IT Act.
Furnishing Form No 67 on or before the tax return filing date is mandatory as per IT rules.
How To Report Gains From Foreign Shares In ITR:
Use ITR Form 2 to report gains under two categories:
- Report stock sales in Schedule CG.
- Report dividend gains in Schedule OS.
- If shares were held on or after 31st March of the relevant year, report in Schedule FA.
Remember, investing in foreign stocks implies tax liability. Returns are the share return minus these taxes. Also, you'll encounter currency fluctuations, as funds convert to dollars before investing.
Not disclosing foreign assets can result in a 10 Lakh penalty. The income tax department may declare the tax return defective under Section 139(9) and issue notice to the assessee.
If you need to file tax return for foreign stock gains, consider assistance from industry experts. Tax2Win's experienced eCAs can help with ITR filing. Maximize your refunds and enjoy foreign exchange investment benefits.
