Investing in NYSE or NASDAQ? How capital gains on US stocks are taxed in India

Who doesn't want to be rich and amass huge wealth? We all have dreams of building a strong and diverse portfolio. Well why limit yourself to buying stocks on every dip at the Dalal Street, or investing in mutual fund that's suiting your risk appetite only in India?

Investors can explore the US stock market which is incredibly attractive. Thanks to several investing platforms, investing in big tech giants like Nvidia, Apple, Google, and Amazon is just a click away.

But while talking about the investing part, we must also be aware of the taxes. You might be wondering, 'Will I get taxed in both countries?', 'How much will be the tax?', 'What is the difference between dividend and capital gains tax?'

When you invest in US stocks as an Indian resident, the capital gains you make from selling those stocks are taxed in India. The good news is, thanks to the Double Taxation Avoidance Agreement (DTAA) between India and the US, you don't have to pay taxes on the same income twice.

Types of taxes on US stocks for Indian investors

There are two types of taxes on US stocks for Indian investors, dividends and capital gains.

1)Dividends from US companies are taxed at 25% in the US before being credited to the investor.

"For example, if you receive $100 as a dividend, $25 is withheld in the US and $75 is paid to you. In India, this dividend is also taxable according to your income slab, but you can claim credit for the US tax already paid under the Double Taxation Avoidance Agreement (DTAA). Suppose this dividend is taxed @30% in India, then you will be liable for a tax of $30 in India. Since you have already paid $25, in the US, you need to pay only $5 in India," explained Abhishek Soni, CEO and Co-founder of Tax2win.

2)Capital gains tax are classified into two types: Short-Term Capital Gains (STCG), Long-Term Capital Gains (LTCG)

• STCG is levied on profits from selling US stocks that have been held for less than two years (24 months).

• Investors will have to pay LTCG in India on profits from selling US stocks that you have held for more than 24 months.

"Capital gains on US stocks are taxed in India based on the holding period – short-term gains within 24 months are taxed at 20%, and long-term gains beyond 24 months are taxed at 12.5% for gains exceeding ₹1.25 lakh,” said Abhishek Soni, CEO and Co-founder of Tax2win.