The two main streams of income from investments in stocks are dividend and capital gains.Dividend Income
As per the India-US Double Taxation Avoidance Agreement (‘DTAA’), flat tax rate of 25% is applicable on dividend income earned, subject to eligibility criteria under the DTAA. This tax is withheld before releasing of dividend to the investors. As per the Finance Act, 2020, dividend income earned is now to be added to total income in India and taxed at applicable slab rates. Due to the DTAA, the tax withheld in the US can be set off against the tax liability in India.
Foreign shares held by an individual for more than 24 months are treated as long-term capital assets and others are treated as short-term capital assets. Capital gain from sale of long-term capital assets would be taxed at 20% with the indexation benefit on purchase price. Indexation is applied to adjust for inflation over the period of holding the asset. Capital gains from sale of short-term capital assets would be taxed at the slab rates applicable for the individual.
The Indian Income Tax Return (ITR) forms are revamped each year to bring more simplification and transparency in terms of reporting income and assets holding. In case of capital gain income during FY 2019-20, the individual would need to file Form ITR-2 or ITR-3.
The reporting would be as below for foreign stocks:
• Schedule CG for Capital Gain
• Schedule OS for Dividend Income
• Schedule FSI and Schedule TR for claiming Foreign Tax Credit in case of double taxation relief
• Schedule FA: Details of holding of foreign shares/securities
Considering the nuances for foreign stocks, kindly consult your tax advisor for any income tax queries.
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