What you need
- LTCG (>24 months): 20% + 4% cess with indexation benefit. Best tax treatment for long-term investors.
- STCG (<24 months): Taxed as per your income tax slab (5-30%). Hold longer to save tax.
- TDS: 20% + 4% cess deducted automatically. Claim credit when filing ITR. Not additional tax.
- TCS on remittances: 20% on amounts >₹7 lakh sent abroad for investments. Refundable via ITR.
- Dividend tax: 25% withheld in US, then taxed in India per your slab. Credit for US tax avoids double taxation.
- Use ITR-2 or ITR-3. Declare foreign assets in Schedule FA. Penalties for non-disclosure: up to ₹10 lakh.
Taxation Overview: The 3 Types of Tax You'll Pay
When you invest in US stocks as an Indian resident, you encounter three main types of taxation:
Capital Gains Tax
Tax on profits when you sell stocks. Split into LTCG (>24 months) and STCG (<24 months). This is your biggest tax liability.
Dividend Tax
Tax on dividends received from US stocks. US withholds 25%, then India taxes remainder. You get credit for US tax.
TCS on Remittances
20% TCS on LRS remittances >₹7 lakh for overseas investments. Not a tax—it's a collection you claim back via ITR.
The Good News: No Double Taxation
India and USA have a Double Taxation Avoidance Agreement (DTAA). If you pay tax in the US (e.g., on dividends), you get credit in India. You're NOT taxed twice on the same income.
Contrarian Take
Most analysts focus on Nvidia's GPU dominance, but they're missing the real story: their software moat through CUDA. Competitors can match chip performance, but can't replicate a decade of developer ecosystem investment.
Capital Gains Tax: LTCG vs STCG
Long-Term Capital Gains (LTCG)
Holding period: More than 24 months (2 years)
Tax rate: 20% + 4% cess = 20.8% effective rate
Key benefit: Indexation—adjusts purchase price for inflation, reducing taxable gain.
LTCG Example: Tesla Investment
Purchase (Jan 2022): Tesla at $200 = ₹16,000 (1 USD = ₹80)
Sale (March 2025): Tesla at $350 = ₹29,750 (1 USD = ₹85)
Holding period: 38 months (qualifies for LTCG)
You Saved with LTCG
Without indexation, taxable gain would be ₹13,750. Tax: ₹2,860.
Just by holding >24 months + indexation benefit!
Short-Term Capital Gains (STCG)
Holding period: Less than 24 months
Tax rate: As per your income tax slab (5%, 20%, or 30%)
No indexation benefit. Full gain is taxed.
STCG Example: Nvidia Quick Flip
Purchase (Jan 2025): Nvidia at $800 = ₹68,000
Sale (Dec 2025): Nvidia at $1,000 = ₹85,000
Holding period: 11 months (STCG)
If you were in 20% slab: Tax = ₹3,536
If you were in 5% slab: Tax = ₹884
| Feature | LTCG (>24 months) | STCG (<24 months) |
|---|---|---|
| Tax Rate | 20% + 4% cess = 20.8% | 5-30% per your slab |
| Indexation | ✅ Yes (reduces taxable gain) | ❌ No |
| Best For | Long-term investors (5+ years) | Traders, short-term plays |
| Effective Tax | Usually 15-18% after indexation | 20-31% (most common slabs) |
Pro Tip: Strategic Timing Matters
If your stock is close to 24-month mark and you're sitting on gains, wait a few weeks to qualify for LTCG. The tax savings can be 10-15% of your profit.
Example: ₹10 lakh gain. STCG (30% slab) = ₹3.12 lakh tax. LTCG (20.8% with indexation) = ₹1.8 lakh tax. You save ₹1.32 lakh by waiting a month.
TDS on US Stocks: What Gets Deducted
TDS (Tax Deducted at Source) on foreign stocks in India:
- Rate: 20% + 4% cess = 20.8%
- Applied to: Capital gains from selling foreign stocks
- Who deducts: Your broker (Vested, INDMoney) deducts this automatically when you sell
- When refunded: When you file ITR. If your actual tax liability is lower than TDS, you get refund.
How TDS Works in Practice
You sell Tesla shares. Profit: ₹1,00,000.
TDS deducted immediately: ₹20,800 (20.8%)
Amount you receive: ₹79,200
Later, when filing ITR:
- If your actual tax (LTCG with indexation): ₹15,000 → You get ₹5,800 refund
- If your actual tax (STCG, 30% slab): ₹31,200 → You pay ₹10,400 more
- If your income is below taxable limit: Entire ₹20,800 refunded
Key Point: TDS is not an extra tax. It's an advance payment. Your final tax liability is calculated when filing ITR. TDS is adjusted against that.
Form 26AS: Your TDS Record
All TDS deducted appears in Form 26AS (available on Income Tax portal). Your broker also provides annual statements. When filing ITR, enter TDS details—system auto-calculates refund or additional tax due.
TCS on LRS Remittances: The ₹7 Lakh Threshold
TCS (Tax Collected at Source) applies when you send money abroad under LRS:
- Threshold: Remittances >₹7 lakh per financial year for overseas investments
- Rate: 20% TCS on amount exceeding ₹7 lakh
- Who collects: Your bank (when you transfer INR to broker)
- Is it a tax: No! It's collected and credited to your PAN. You claim it back when filing ITR.
TCS Calculation Example
Scenario: You transfer ₹15 lakh to Vested in FY 2025-26.
What you actually send abroad: ₹15,00,000 - ₹1,60,000 = ₹13,40,000
TCS appears in Form 26AS: ₹1,60,000 credit
When filing ITR: If your total tax liability is ₹50,000, you get ₹1,10,000 refunded.
How to Minimize TCS Impact
Spread Across Years
Send ₹6.9 lakh in March FY25, ₹6.9 lakh in April FY26. Total ₹13.8 lakh, zero TCS.
Use Family LRS Quotas
Spouse, parents (if financially dependent on you) each have ₹7 lakh exemption. Legal if they genuinely invest.
Budget for TCS
If transferring ₹20 lakh, budget additional ₹2.6 lakh for TCS. You'll get it back, but it ties up cash for 6-12 months.
Dividend Tax: US Withholding + India Tax
When US stocks pay dividends (e.g., Apple pays ~0.5% yield annually):
Step 1: US Withholding Tax
US government withholds 25% tax on dividends paid to Indian residents (per India-US tax treaty).
Example: Apple pays $100 dividend. You receive $75. $25 withheld by US IRS.
Step 2: India Tax on Dividends
Dividends are added to your income and taxed as per your slab (5-30%).
Step 3: Foreign Tax Credit
You get credit for 25% already paid in US. No double taxation.
Dividend Tax Example: Apple Dividend
Gross dividend from Apple: $1,000 = ₹85,000
US withholds 25%: $250 = ₹21,250
You receive: $750 = ₹63,750
In India (assume you're in 30% tax slab):
- Dividend income: ₹85,000
- Tax due (30%): ₹25,500
- Less: Foreign Tax Credit for US withholding: ₹21,250
- Additional tax you pay in India: ₹4,250
Total effective tax: ₹25,500 (30% of ₹85,000). You paid ₹21,250 in US, ₹4,250 in India. No double taxation.
| Your Tax Slab | Total Tax on Dividend | Already Paid in US | You Pay in India |
|---|---|---|---|
| 5% | 5% | 25% (withheld) | Zero (refund of 20%) |
| 20% | 20% | 25% | Zero (refund of 5%) |
| 30% | 30% | 25% | 5% additional |
Important: Claim Foreign Tax Credit
When filing ITR, you must claim Foreign Tax Credit (FTC) in Schedule TR. Provide:
- Foreign income details
- Tax paid in US (broker provides statement)
- Tax rate per DTAA
Without FTC, you'll be taxed twice. Don't skip this step. Hire a CA if unsure.
How to File ITR for US Stocks
Which ITR Form to Use
- If you have only salary + US stock income: Use ITR-2
- If you have business/professional income: Use ITR-3
- Cannot use ITR-1: ITR-1 doesn't allow foreign asset reporting
What to Report
1. Capital Gains (Schedule CG)
- Enter each sale transaction
- Sale price, purchase price, holding period
- System calculates LTCG/STCG
2. Dividend Income (Schedule OS - Income from Other Sources)
- Enter gross dividend (before US withholding)
- In Schedule TR, claim Foreign Tax Credit for US withholding
3. Foreign Assets (Schedule FA)
This is mandatory. Declare:
- Name of foreign entity (e.g., DriveWealth LLC)
- Country: USA
- Account number
- Peak balance during year (highest value of holdings)
- Closing balance (value as of March 31)
Penalty for Not Disclosing Foreign Assets
If you fail to disclose foreign assets in Schedule FA:
- Penalty: ₹10 lakh per year of non-disclosure
- Black Money Act: Can attract 120% tax + prosecution in extreme cases
- Income Tax Notice: Automatic flagging by systems
Always disclose. The risk isn't worth it.
Documents You Need
- From broker (Vested/INDMoney):
- Realized gain/loss statement
- Dividend statement
- Foreign tax withheld (for FTC)
- Year-end account value
- From bank: LRS declaration forms, TCS certificates
- Form 26AS: Shows TDS and TCS collected
Should You Hire a CA?
Hire a CA If...
You have >₹10 lakh in US stocks, or complex transactions (multiple buys/sells, dividend income, foreign currency gains), or first time filing with foreign assets.
DIY If...
Simple: 1-2 stocks, few transactions, no dividends, comfortable with ITR portal. Brokers like Vested provide pre-filled data.
CA Cost: ₹2,000-5,000 for filing ITR with foreign assets. Worth it for peace of mind.
7 Legal Tax Optimization Strategies
Hold >24 Months for LTCG
LTCG (20.8% with indexation) vs STCG (30%) = save 10-15% tax. On ₹10 lakh gain, that's ₹1-1.5 lakh saved.
Harvest Tax Losses
Sell losing stocks before March 31 to offset gains. Example: ₹5 lakh gain from Nvidia, ₹2 lakh loss from Tesla. Net taxable: ₹3 lakh. Save ₹62,400 tax.
Stay Under ₹7 Lakh LRS
To avoid 20% TCS upfront, remit <₹7 lakh/year. If you need ₹14 lakh, do ₹6.9L in March, ₹6.9L in April.
Reinvest Dividends
Keep dividends in USD, reinvest in US stocks. Defer Indian dividend tax until you actually bring money back to India.
Gift to Lower-Income Family Members
If your spouse is in 5% tax bracket, gift them shares (no gift tax between spouses in India). When they sell, only 5% STCG vs your 30%. Legal, save 25% tax.
Strategic Sell Timing
If you're about to switch jobs (lower income year), sell stocks that year when you're in a lower tax slab.
Claim All Deductions
80C (₹1.5L), 80D (health insurance), HRA, home loan interest—reduce overall taxable income, which reduces STCG liability.
5 Costly Tax Mistakes Indians Make
Mistake #1: Not Declaring Foreign Assets
Even if you made zero gains, you must declare holdings in Schedule FA. Penalty: ₹10 lakh. Brokers report to US IRS, which shares data with India. You will get caught.
Mistake #2: Forgetting to Claim FTC
If you don't claim Foreign Tax Credit on dividends, you pay 30% in India + 25% already paid in US = 55% total. Use Schedule TR.
Mistake #3: Thinking TCS is Lost Money
TCS is refundable. But many don't file ITR properly and lose it. File correctly, claim refund.
Mistake #4: Not Using Indexation for LTCG
Indexation can reduce taxable gain by 15-30%. Don't forget to apply Cost Inflation Index when calculating LTCG.
Mistake #5: Selling Just Before 24 Months
Impatience costs money. Selling at 23 months = 30% STCG. Waiting 1 more month = 20.8% LTCG. On ₹10L gain, you save ₹92,000 by waiting 30 days.
Tax Compliance = Peace of Mind
Taxes are complex, but not impossible. File correctly, declare everything, claim all credits. The ₹2,000-5,000 you spend on a good CA saves you lakhs in penalties and sleepless nights.
Remember: LTCG beats STCG. TCS is refundable. Foreign Tax Credit avoids double taxation. Schedule FA is mandatory.
Invest smart. Pay taxes smartly. Sleep soundly.