Taxation of Foreign Stocks in India

Want to invest in companies like Apple, Microsoft or the next big AI company? The good news is that Indian investors can buy and sell foreign stocks. Or else, if you work for a multinational company, your employer can also offer Restricted Stock Units (RSUs) or Employee Stock Options (ESOPs) as part of your compensation.

However, earning a return from foreign stocks is only half the job. Reporting foreign assets, dividends, capital gains and tax credits correctly is equally important. If you miss a disclosure or filing requirement, you may have to face unnecessary complications and penalties.

Let’s understand the taxation aspect of investing in foreign stocks, from sending money abroad under the Reserve Bank of India (RBI) rules to reporting foreign investments correctly in your income tax return.

How Do You Send Money Abroad to Invest

Under the Liberalised Remittance Scheme (LRS), the RBI allows every Indian resident to remit up to USD 250,000 per financial year for permitted purposes. This includes investments in foreign stocks. Your bank handles this when you fund your overseas brokerage account.

Before the money leaves India, your bank may collect Tax Collected at Source (TCS) under the LRS. This is not an extra tax. It works like advance tax and can be adjusted against your final tax liability when you file your ITR.

As of June 2026,

• No TCS is collected if your total LRS remittances during the financial year do not exceed ₹10 lakh.
• If the ₹10 lakh limit is crossed, TCS is collected at 20% for foreign stock and overseas investment remittances.
• The ₹10 lakh limit is cumulative and includes all eligible LRS remittances, not just overseas investments.
• The TCS collected is reflected in Form 26AS and can be claimed while filing your income tax return.

You should also submit Form W-8BEN, if investing in US stocks, bonds and ETFs, to your overseas broker. This establishes your resident Indian status and ensures that applicable India-US tax treaty benefits are applied correctly.

What Are SBI TT Rates and Why Do They Matter?

When you invest in foreign stocks, your transactions take place in a foreign currency, but your taxes are calculated in Indian rupees. For tax purposes, the Income Tax Rules prescribe specific currency conversion methods that may use SBI Telegraphic Transfer (TT) Buying Rates.

Because of these conversion rules, the profit, loss or dividend income reported in your ITR may be different from what is shown by your overseas broker. This difference is normal and is often caused by exchange-rate movements and the prescribed tax conversion rules.

Tax on Capital Gains from Foreign Stocks

Foreign shares, including US stocks listed on the NYSE and NASDAQ, are generally treated as unlisted securities under Indian tax law because they are not listed on a recognised Indian stock exchange.

Capital gains on foreign shares must be calculated in accordance with the currency conversion rules prescribed under the Income Tax Act. Since exchange-rate movements can affect the final gain or loss reported in rupees, the taxable gain shown in your income tax return may differ from the gain reflected in your brokerage account.

Source - Income Tax Act, 1961 (as amended), Section 112 and capital gains provisions applicable to unlisted shares and foreign securities for FY 2025-26 (AY 2026-27).

Tax on Dividend Income From Foreign Stocks

If you invest in foreign stocks, dividend income may be taxed both in the country where the company is based and in India. The tax treatment varies from country to country, depending on the local tax laws and any Double Taxation Avoidance Agreement (DTAA) that India has with that country.

• Some countries may deduct tax from dividends before the money is credited to your brokerage account.
• The withholding tax rate can differ by country and may also depend on the applicable DTAA provisions.
• In India, foreign dividend income is generally added to your total income and taxed according to your applicable income tax slab.
• To avoid double taxation, you can generally claim a credit for foreign taxes paid, subject to the applicable conditions.
• To claim Foreign Tax Credit (FTC), file Form 44 and maintain records of the foreign income and taxes paid overseas.
• Dividend income is generally taxable in the year it is credited to your overseas brokerage account.
• Transferring the money to India at a later date does not normally change the year in which the income is taxed.

Note: For dividends from US-listed stocks, the US generally withholds tax before crediting the dividend, subject to the applicable India - US DTAA provisions.

Source: Relevant DTAA provisions, Income-tax Act, 2025, and Income-tax Rules, 2026.

RSUs from a Foreign Employer

RSUs (Restricted Stock Units) are shares given by an employer as part of an employee's compensation package. These shares become yours after you complete a specified period of service, known as the vesting period.

Important: If your RSUs are shares of a foreign company, you may need to report them in the foreign asset schedule of your ITR, even if you have not sold, transferred, or earned any income from them during the financial year.

How Are Foreign RSUs Taxed?

For Indian tax residents, foreign RSUs can result in taxation at two different stages:

At the time of vesting: When the RSUs vest, the value of the shares is generally treated as salary income and taxed accordingly. In many cases, the tax is deducted through the employer's payroll and reflected in Form 16. However, some foreign RSU plans may not be processed through Indian payroll. Therefore, employees should not assume that the income is tax-free simply because it does not appear in Form 16.

At the time of sale: If you later sell the vested shares, any gain or loss compared to the value considered at vesting is generally treated as a capital gain or capital loss. The tax treatment depends on factors such as the holding period and the applicable tax rules. Many employees assume that the tax paid at vesting is the final tax liability. However, the subsequent sale of foreign RSU shares is a separate taxable event and may also need to be reported in the Income Tax Return (ITR).

ESOPs from a Foreign Employer

An ESOP gives employees the right to buy company shares at a fixed price, usually lower than the market price. While RSUs generally become shares automatically upon vesting, ESOPs provide employees with the option to purchase company shares at a pre-determined exercise price after the vesting conditions are met.

How Are Foreign ESOPs Taxed?

For Indian tax residents, foreign ESOPs can result in taxation at two different stages:

At the time of exercise: When you exercise your foreign ESOPs and acquire the shares, the difference between the fair market value (FMV) of the shares and the exercise price is generally treated as salary income and taxed accordingly.

At the time of sale: If you later sell the shares, any gain or loss compared to the value considered at the time of exercise is generally treated as a capital gain or capital loss. The tax treatment depends on factors such as the holding period and the applicable tax rules. Many employees assume that the tax paid at the time of exercise is the end of the tax liability. However, the subsequent sale of foreign ESOP shares is a separate taxable event and may also need to be reported in the Income Tax Return (ITR).

Example - Suppose your ESOP allows you to buy a share for ₹100, while its market value is ₹500. The ₹400 difference is treated as salary income. If you later sell the share for ₹700, the additional ₹200 profit is taxed as a capital gain. In many cases, the tax on ESOPs is handled through your employer's payroll and may be reflected in Form 16. However, some foreign ESOP plans may not be routed through Indian payroll, so employees should not assume that an amount is tax-free simply because it does not appear in Form 16.

How to Avoid Paying Tax Twice: DTAA and Form 44

India has Double Tax Avoidance Agreements (DTAAs) with over 150 countries, including the United States. These agreements ensure that the same income is not taxed twice, in India and a foreign country where investment is made.

For example, if you receive dividends from US companies, tax is usually deducted in the US before the money reaches your account. In India, the same dividend is added to your taxable income and taxed according to your income tax slab. Fortunately, this does not mean you pay tax twice. You can generally claim credit for the tax already paid in the US through the Foreign Tax Credit (FTC) mechanism.

1. To claim Foreign Tax Credit (FTC), file Form 44 (previously Form 67 under the earlier tax framework) and keep records of the foreign income and taxes paid overseas.
2. Report the foreign income and tax credit claimed in Schedule FSI and Schedule TR of your income tax return.

For most Indian investors, profits(capital gains) from selling US stocks are generally taxed only in India. Unlike dividends, the US does not deduct tax when a non-resident investor sells shares at a profit.

Source: India–US DTAA, Income-tax Act, 2025, and Income-tax Rules, 2026.

What to Disclose in Your ITR and Which Form to Use

If you hold foreign stocks, you generally cannot use ITR-1 or ITR-4. Most investors use,

• ITR-2 if they have salary income, capital gains, or foreign investments.
• ITR-3 if they also have business or professional income.

The important schedules to be aware of are: Schedule FA: ROR (Resident and Ordinarily Resident) taxpayers must disclose foreign assets, including overseas shares, even if no dividend was received and no shares were sold during the year. Schedule FSI: Report foreign income such as dividends and capital gains. Schedule CG: Report capital gains from the sale of foreign shares. Schedule TR: Claim Foreign Tax Credit for taxes paid overseas, where eligible Schedule AL: Required in certain cases where total income exceeds ₹50 lakh, requiring disclosure of assets and liabilities, including foreign investments.

Failure to disclose foreign assets, where disclosure is required, can attract penalties under applicable tax laws. Therefore, investors should maintain proper records of overseas investments and transactions throughout the year.

Common Mistakes to Avoid

• Not filing Schedule FA because you didn't sell anything. Disclosure is mandatory even if you are holding and have not sold.
• Missing Form 44 before your ITR. This can get your Foreign Tax Credit cancelled.
• Using the wrong exchange rate. Always use SBI TTBR as of the last day of the month before the transaction date.
• Claiming the ₹1.25 lakh LTCG exemption on foreign stocks. It does not apply.
• Assuming RSU tax ends with your employer. Your employer covers the perquisite TDS at vesting. Capital gains on sale, or holding any vested shares in a foreign brokerage account, are entirely your responsibility to report.
• Leaving dividends in your overseas account. Tax is due in India the year the dividend is earned, not when you transfer the money home.

Quick Filing Checklist

Before you invest

• Submit Form A2 to your bank for each LRS remittance
• Submit Form W-8BEN to your overseas broker

During the year

• Record purchase date, price in USD and SBI TTBR rate for every transaction
• Save all dividend statements with dates and amounts
• Keep Form 27D from your bank for every remittance

During Filling Taxes

• Use ITR-2 or ITR-3
• File Form 44 first, before your ITR
• Fill Schedule FA, FSI, CG, and TR
• Cross-check TCS in Form 26AS and adjust against tax liability

Frequently Asked Questions

Can I invest in US stocks from India legally?

Yes. Under the RBI's Liberalised Remittance Scheme, every Indian resident can remit up to USD 250,000 per financial year for permitted purposes, including investments in foreign stocks and ETFs. You invest through an overseas brokerage account funded via your Indian bank or even through GIFT City IFSC.

Is the holding period for US stocks 12 months or 24 months?

24 months. US stocks are treated as unlisted securities under Indian tax law since they are not listed on a recognised Indian stock exchange.

Do I get the 1.25 lakh rupee LTCG exemption on US stocks?

No. The ₹1.25 lakh exemption under Section 112A applies only to listed Indian equities. Foreign stocks are treated as unlisted securities, so every rupee of long-term gain is fully taxable at 12.5%, with no threshold exemption.

If the US already deducted 25% tax on my dividend, do I still pay tax in India?

Yes, but you don't pay double. US companies deduct 25% withholding tax on dividends paid to Indian investors under the India-US DTAA. In India, the full dividend is added to your income and taxed at your slab rate, but you can claim the 25% already paid in the US as a Foreign Tax Credit against your Indian liability. You must file Form 44 before your ITR to claim this credit.

Is TCS on foreign remittance refundable?

Yes. TCS is a prepaid advance tax, not an additional charge. It appears in your Form 26AS and can be adjusted against your final tax liability or claimed as a refund when you file your ITR if your actual tax liability is lower than the TCS collected.

When exactly are RSUs taxed, at vesting or at sale?

Both. At vesting, the Fair Market Value of the shares is treated as a salary perquisite and taxed at your applicable slab rate, with TDS deducted by your employer. At sale, the difference between the sale price and the FMV at vesting is taxed as capital gains, short-term or long-term depending on how long you held the shares after vesting.

My employer deducted TDS on my RSUs. Do I still need to report anything in my ITR?

Yes. Your employer only handles the perquisite TDS at vesting, which appears in your Form 16. The capital gains when you eventually sell the RSU shares are entirely your responsibility to report in the capital gains schedule of your ITR. You also need to disclose the shares under Schedule FA for every year you hold them.

Which ITR form should I use if I hold US stocks?

You cannot use ITR-1 or ITR-4 if you hold foreign stocks or earn foreign income. Use ITR-2 if your income is from salary, dividends, or capital gains. Use ITR-3 if you also have income from a business or profession.

Is it mandatory to disclose US stocks in Schedule FA even if I didn't sell any?

Yes. Schedule FA disclosure is mandatory for every financial year in which you hold any foreign asset, even if you earned no income and made no transactions during the year.