How Does Taxation on US Stocks Work?

How Does Taxation on US Stocks Work?

When investing in US stocks, there are two main types of taxation events:

1. Taxes on Investment Gains:

·        Short-Term Capital Gains (STCG): The gains are considered short-term if you sell your US stocks within 24 months of purchase. These are taxed according to your income tax slab in India.

·        Long-Term Capital Gains (LTCG): If you hold the stocks for more than 24 months, the gains are classified as long-term. Long-term capital gains are taxed at a rate of 20% with indexation benefits in India.

2. Taxes on Dividends:

·        US Tax: Dividends from US stocks are subject to a flat withholding tax rate of 25% in the US.

·        Indian Tax: In India, dividends from US stocks must be reported as part of your global income. However, you can claim a Foreign Tax Credit thanks to the Double Taxation Avoidance Agreement (DTAA) between the US and India. This credit allows you to offset the US tax already paid (25%) against your Indian tax liability.

For accurate tax reporting and to ensure you take full advantage of available credits and benefits, it's advisable to consult with a tax professional.


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