Tax on US Tech Stocks for Indian Residents

Capital Gains Tax: STCG vs LTCG

Short-Term Capital Gains (STCG) - Holding Period <24 Months

Tax Rate: 20% flat rate on gains (regardless of income slab) [Source: Income Tax Act Section 112]

Example:

• Buy Nvidia at ₹8,000 (when $100 At USD/INR = 80)
• Sell after 18 months at ₹16,000 (when $200 at USD/INR = 80)
• Gain: ₹8,000
• Tax: 20% of ₹8,000 = ₹1,600
• Net profit after tax: ₹6,400

Long-Term Capital Gains (LTCG) - Holding Period >24 Months

Tax Rate: 12.5% on gains (with indexation benefit) [Source: Income Tax Act Section 112]

Indexation Benefit:

Your purchase cost gets adjusted for inflation using CII (Cost Inflation Index), reducing taxable gains [Source: Income Tax Department CII Table].

Example with Indexation:

• Buy Tesla in April 2024 at ₹10,000
• Sell in May 2026 at ₹20,000 (held >24 months)
• Raw gain: ₹10,000
• After indexation adjustment (~5% over 2 years): Gain reduces to ₹9,000
• Tax: 12.5% of ₹9,000 = ₹1,125
• Without indexation, tax would be ₹1,250—you save ₹125

TCS (Tax Collected at Source) on Foreign Remittance

When you send money abroad via LRS, government collects 5% TCS as advance tax [Source: RBI LRS Master Direction].

How TCS Works:

• First ₹7 lakh per year: No TCS [Source: RBI LRS Guidelines]
• Above ₹7 lakh: 5% TCS deducted
• This gets credited to your PAN and adjusts against final tax liability when filing ITR

Example:

• You remit ₹12 lakh to buy US stocks
• First ₹7L: No TCS
• Next ₹5L: 5% TCS = ₹25,000 deducted
• You receive $14,400 (assuming ₹11.75L after TCS)
• You claim ₹25K back when filing ITR (fully refundable if your tax liability is lower)

TCS Optimization Strategy:

Spread large investments across financial years:

• March 2026: Remit ₹7L (no TCS)
• April 2026: Remit ₹7L (no TCS—new financial year)
• Total ₹14L invested with zero TCS deduction

Dividend Tax & DTAA Relief

How US Stock Dividends Are Taxed:

1. USA withholds 25% automatically (under DTAA treaty) [Source: IRS India-USA Tax Treaty]
2. India taxes dividends per your income slab (30% if highest bracket)
3. You claim credit for 25% already paid to USA—no double tax

Example:

• You earn $100 dividend from Microsoft
• USA deducts $25 withholding tax → You receive $75
• Convert to INR: ₹6,250 (assumed rate ₹83.33)
• Your Indian tax slab: 30%
• Total tax owed to India: 30% of ₹8,300 = ₹2,490
• USA already collected 25% = ₹2,075
• You pay difference to India: ₹2,490 - ₹2,075 = ₹415

Claiming DTAA Relief:

• File Form 67 along with ITR [Source: Income Tax Department Form 67]
• Submit US tax documents (1042-S form from broker)
• Claim foreign tax credit—automatic adjustment in calculator

ITR Filing & Schedule FA

Which ITR Form to File?

ITR-2: Required if you have capital gains from foreign stocks (most investors)

ITR-3: If you're a business owner + have foreign stock gains

Schedule FA (Foreign Assets)

Mandatory if your foreign assets exceed ₹2.5 lakh at any point during the year [Source: Income Tax Act Section 139].

What to Report:

• Name of foreign entity (DriveWealth, Interactive Brokers, etc.)
• Country: USA
• Date of acquisition of shares
• Peak value during year (in INR)
• Closing balance on March 31

Step-by-Step ITR Filing Process:

1. Gather documents: Broker statements, buy/sell confirmations, dividend slips, TCS certificates
2. Calculate gains: Use FIFO method (First In First Out) for cost basis
3. Apply indexation for LTCG (get CII from Income Tax website)
4. File ITR-2 online via Income Tax portal
5. Fill Schedule FA with foreign asset details
6. File Form 67 if claiming DTAA relief on dividends
7. E-verify using Aadhaar OTP/Net Banking

Tax Optimization Strategies

Strategy 1: Hold for 24+ Months

Reduces tax from 20% (STCG) to 12.5% (LTCG). On ₹10L gains, save ₹75,000.

Strategy 2: Tax-Loss Harvesting

If you have losing positions, sell them to offset gains:

• Nvidia gain: ₹5L
• Tesla loss: ₹2L
• Net taxable gain: ₹3L (instead of ₹5L)
• Tax saved: 20% of ₹2L = ₹40,000

Strategy 3: Stagger Sales Across Financial Years

If you have large gains, sell in tranches:

• March 2026: Sell ₹10L worth (pay tax in FY 2025-26)
• April 2026: Sell ₹10L worth (pay tax in FY 2026-27)
• Spreads tax liability, improves cash flow

Strategy 4: Reinvest Dividends to Defer Taxes

Use dividend reinvestment plans (DRIP) offered by some brokers—auto-buys more shares, defers cash realization.

Strategy 5: Gift to Spouse/Parents

If you're in 30% tax bracket but spouse/parent is in 20%, gift shares to them (no gift tax in India for transfers to family). They sell at lower tax rate.

Warning: Complex—consult CA to avoid clubbing provisions.

Common Tax Mistakes to Avoid

Mistake #1: Not Reporting Foreign Assets

Many investors skip Schedule FA thinking "IT dept won't know." Wrong. Income Tax has data-sharing agreements with US (FATCA) [Source: IRS FATCA]. Penalty: ₹10 lakh [Source: Income Tax Act Section 271AA].

Mistake #2: Wrong Cost Basis Calculation

You bought Tesla at $100 when USD = ₹80 (cost = ₹8,000). You sell at $150 when USD = ₹85 (proceeds = ₹12,750).

Wrong: Gain = $50 → ₹4,250 (using average rate)

Right: Gain = ₹12,750 - ₹8,000 = ₹4,750 (INR to INR calculation)

Mistake #3: Claiming Wrong Holding Period

Bought on March 15, 2024. Sold on March 10, 2026 = 23 months 25 days = STCG (20% tax), not LTCG!

You needed to wait 5 more days to save 7.5% tax.

Mistake #4: Not Claiming TCS Refund

TCS deducted but you forget to mention it in ITR → No refund. Always enter TCS amount (broker provides certificate).

Mistake #5: Using Offshore Shell Companies

Some "advisors" suggest routing investments via Singapore/Mauritius to avoid tax. This is illegal and invites PMLA scrutiny + penalties.

Pay your taxes honestly—12.5-20% is fair price for accessing global markets.