Tax on US Stocks in India: Capital Gains, Dividends and Reporting

Updated October 2026.

Tax is where most of the confusion around US investing sits, and a lot of it comes from merging two separate questions: what the United States takes, and what India takes.

The short version is that, for ordinary US shares and most ETFs, the United States does not tax an Indian resident's capital gains. It does withhold tax on dividends. India taxes both — capital gains at rates that depend on how long you held, and dividends at your slab rate, with credit available for the tax already withheld in the US.

This article is the starting point for the whole tax cluster. Each section links to a deeper treatment.

Capital gains on US stocks and ETFs

For an Indian resident, capital gains on directly held US stocks and ETFs are taxed in India as follows:

The 12.5% long-term rate applies to transfers on or after 23 July 2024, following Budget 2024, which reduced it from 20% and removed indexation. It is unchanged for FY 2026-27.

For ordinary US shares and most ETFs, there is no US capital gains tax for an Indian resident; capital gains are taxed in India. Units of publicly traded partnerships are an exception: the US withholds 10% of the sale proceeds.

The ₹1.25 lakh exemption does not apply

This is the single most common error. The ₹1.25 lakh long-term capital gains exemption applies to Indian listed equity and equity-oriented mutual funds only. Gains on US stocks and ETFs do not benefit from it.

Long-term gains on US holdings are therefore taxable from the first rupee. Anyone planning around an exemption that does not exist will under-provision for tax.

Converting USD gains into rupees

Gains arise in dollars but are taxed in rupees, so the conversion rate matters. The Income-tax Rules set the SBI telegraphic-transfer buying rate; how it applies to the purchase leg is read differently, so agree the method with your CA.

One consequence worth noting: depending on the method, rupee depreciation can create a taxable gain even where the dollar value barely moved. Currency is part of your taxable return, not a separate matter. See Currency Risk Explained.

Dividends

Dividends work differently from capital gains because both countries take a share.

1. The US withholds first. The default rate for a non-resident is 30%. With Form W-8BEN on file, the India–US treaty rate of 25% applies to ordinary dividends for eligible Indian residents; otherwise 30%. You receive the dividend net of this.
2. India taxes the gross dividend. The full pre-withholding amount is added to your income and taxed at your slab rate.
3. You claim credit for the US tax, up to the Indian tax on that dividend. If your slab rate is below 25%, part of the US tax cannot be recovered.

The 15% treaty rate that sometimes gets quoted requires holding at least 10% of the voting stock of the paying company. It is not available to retail investors.

See Dividend Tax on US Stocks and The India–US DTAA and Foreign Tax Credit.

Which ITR form, and what goes in it

Holding foreign assets rules out ITR-1 and ITR-4. Most investors with US holdings file ITR-2; those with business or professional income file ITR-3.

Three schedules matter:

• Schedule CG — capital gains on disposals during the year.
• Schedule FSI and Schedule TR — foreign-source income and the tax relief claimed on it.
• Schedule FA — the foreign assets themselves, disclosed by residents who are ordinarily resident whether or not they sold anything or made any gain.

See How to Report US Stocks in Your ITR.

Schedule FA is a separate obligation

It is worth stating plainly because it is so often missed: if you are resident and ordinarily resident in India, disclosure is triggered by holding the asset, not by profiting from it. An investor who bought US shares, held them all year, sold nothing and received nothing still has a Schedule FA obligation.

Non-disclosure carries exposure under the Black Money (Undisclosed Foreign Income and Assets) Act, where the consequences are considerably more serious than the tax at stake. See Schedule FA and Foreign Asset Reporting.

TCS is not a tax on your investment

When you remit money abroad under the LRS, your bank collects TCS at 20% on the amount exceeding ₹10 lakh of cumulative remittances under your PAN in a financial year. The threshold rose from ₹7 lakh on 1 April 2025.

Budget 2026 reduced the rate to 2% for education and medical remittances. Investment remittances remain at 20%.

TCS is collected in advance. It is credited against your income tax when you file your return, so it is an advance, not an extra tax. Any refundable excess depends on your tax position and the filing process. The real effect is on cash flow and timing, not on total cost. See TCS on LRS Remittances.

The estate tax question

Rarely discussed and worth knowing about above a certain portfolio size. For US estate tax, status turns on citizenship and domicile, not on income-tax residence: someone who is neither a US citizen nor domiciled in the US is a non-resident alien, and US-situs assets above a USD 60,000 exemption can attract US estate tax at rates up to 40%. A US estate tax return (Form 706-NA) is generally required where US-situs assets exceed USD 60,000 at death.

India does not have an estate tax treaty with the United States that meaningfully raises that threshold, unlike some other countries. See US Estate Tax for Indian Investors.

A worked example

An investor buys USD 10,000 of a US ETF and sells three years later for USD 14,000.

• Holding period is more than 24 months, so the gain is long-term.
• Both legs convert to rupees using the SBI TT buying rate, applied by the method agreed with your CA, so the rupee gain can reflect any rupee movement over the period as well as the USD 4,000 appreciation.
• The rupee gain is taxed at 12.5% plus applicable surcharge and cess, with no ₹1.25 lakh exemption available.
• Any dividends received along the way were separately taxable at slab rate each year, with credit for the US tax withheld (25% with a W-8BEN on file), up to the Indian tax on those dividends.
• For a resident and ordinarily resident investor, the holding appeared in Schedule FA every year it was held, including years with no transaction.

This is illustrative only. Actual liability depends on your slab, surcharge, the specific rates on the relevant dates, and your overall tax position.

Common mistakes

• Assuming the ₹1.25 lakh LTCG exemption applies to foreign shares.
• Using the 12-month holding period that applies to Indian equity. For US holdings it is 24 months.
• Using an exchange rate other than the SBI TT buying rate, or a method not agreed with your CA.
• Reporting the net dividend received rather than the gross.
• Treating TCS as a sunk cost rather than claiming it as a credit in your return.
• Filing ITR-1 while holding foreign assets.
• Skipping Schedule FA in a year with no sale.

Conclusion

The tax treatment of US holdings is more involved than that of Indian equity, but it is entirely knowable. The rates are fixed, the forms are specified, and the reporting obligations are clear. What causes problems is applying Indian-equity intuitions — the 12-month period, the ₹1.25 lakh exemption — to assets they were never written for.

Keep records from day one, and take professional advice for anything material.

Sources8

1. Income Tax Department: section 197 of the Income-tax Act, 2025 — https://www.incometaxindia.gov.in/w/section-197-78
2. Income Tax Department — Section 2, Income-tax Act, 2025 (holding periods) — https://www.incometaxindia.gov.in/w/section-2-263
3. Income Tax Department: Rule 206 of the Income-tax Rules, 2026 — https://www.incometaxindia.gov.in/w/rule-206-1
4. IRS — India–US income tax treaty (Article 10, dividends) — https://www.irs.gov/pub/irs-trty/india.pdf
5. IRS: Publication 515 (2026), Withholding of Tax on Nonresident Aliens and Foreign Entities — https://www.irs.gov/publications/p515
6. Income Tax Department: Step-by-Step Guide to Fill FSI, TR and FA Schedule in ITR — https://www.incometax.gov.in/iec/foportal/sites/default/files/2026-03/Step%20by%20Step%20Guide%20FA%20FSI.pdf
7. Income Tax Department: ITR-2 for AY 2026-27 (Schedule FA) — https://www.incometaxindia.gov.in/documents/d/guest/itr-2-2026-eng-pdf
8. Income Tax Department: Individual tax rates, surcharge, cess and rebate (AY 2026-27) — https://www.incometax.gov.in/iec/foportal/help/individual-business-profession

Disclaimer: This article is for educational purposes only and is not tax, legal, investment, or financial advice. Rates and thresholds are stated as of August 2026 and can change with each Finance Act. Tax treatment varies with residential status, income level, surcharge, cess, product structure and individual facts. Please consult a qualified CA or tax advisor before acting, and read our Risk Disclosure and Disclaimer.