Tax on Foreign Stocks in India: Capital Gains, Dividends, Reporting & DTAA Explained

More Indians are investing in foreign stocks than ever before. US stocks, global ETFs, and overseas employee stock plans have become easily accessible through the Liberalised Remittance Scheme (LRS) and investment platforms[reference:7]. But while buying Apple or Nvidia shares is now a few taps away, understanding how those investments are taxed in India is far more complex.

Many investors know how to buy foreign assets. Far fewer understand how those investments are taxed when they are sold, how dividends are treated, or what they must report in their income tax return[reference:8]. This guide covers everything about the tax on foreign stocks in India, capital gains, dividends, TCS on LRS remittances, DTAA benefits, Foreign Tax Credit, and the critical reporting requirements you cannot afford to miss.

How Are Foreign Stocks Taxed in India?

For Indian resident taxpayers, global income is taxable in India under the Income-tax Act, 2025 (which came into effect on 1 April 2026, corresponding to the erstwhile Income-tax Act, 1961)[reference:9][reference:10]. This means income earned from foreign shares, overseas brokerage accounts, and foreign trading activities must be reported and taxed in India, regardless of where the income is earned or whether tax has been paid in the foreign jurisdiction[reference:11].

The taxation of foreign stocks falls into three main categories:

1. Capital gains tax , on profits from selling foreign shares
2. Dividend tax , on income from foreign company dividends
3. TCS on remittances , Tax Collected at Source when sending money abroad under LRS

Capital Gains Tax on Foreign Stocks

Shares listed only on overseas exchanges, such as those in the US (NYSE, NASDAQ), South Korea, or Taiwan, are treated as unlisted securities under Indian tax law[reference:12][reference:13]. The holding period determines whether the gain is short-term or long-term[reference:14].

Holding Period and Tax Rates

Important: Unlike listed Indian shares, foreign shares do not get the Rs. 1.25 lakh exemption under Section 112A because no Securities Transaction Tax (STT) is paid on these transactions[reference:18].

Example: LTCG on Foreign Stocks

Suppose you buy foreign shares for Rs. 5,00,000. After three years, you sell them for Rs. 8,00,000[reference:19]:

Plus applicable surcharge and cess (verify current rates on incometaxindia.gov.in).

Currency Conversion: The SBI TT Rule

When you invest in foreign stocks, transactions occur in foreign currency, but taxes are calculated in Indian rupees[reference:20]. The prescribed method:

1. Compute capital gains in the same foreign currency (e.g., USD) by taking sale consideration, cost of acquisition, and transfer-related expenses in USD[reference:21]
2. Convert the resultant capital gain into Indian rupees using the State Bank of India (SBI) Telegraphic Transfer (TT) buying rate prevailing on the last day of the month immediately preceding the month in which the shares are sold[reference:22][reference:23]

Example: If you sell shares in August 2026, the applicable exchange rate would be the SBI TT buying rate as on 31 July 2026[reference:24].

⚠️ Note: Currency fluctuations can affect taxable capital gains. There is no separate tax relief for rupee depreciation that may have occurred between investment and sale[reference:25]. (Verify current exchange rates and prescribed methods on incometaxindia.gov.in.)

Overseas Intraday Trading

The tax treatment of overseas intraday trading is different. Since there is ordinarily no delivery of shares, such transactions generally do not give rise to capital gains. Instead, profits are treated as business income and taxed at the taxpayer's applicable slab rate[reference:26].

Dividend Tax on Foreign Stocks

Dividends from foreign companies, like Apple, Microsoft, or Google, are taxable in India[reference:27].

US Dividend Withholding

When a US company pays a dividend to an Indian resident, the US typically withholds tax at source:

• Standard US withholding: 30%
• Reduced rate under India-US DTAA: 25% (after submitting Form W-8BEN)[reference:28][reference:29]

Example: If you receive $100 as a dividend:

Indian Tax on Dividends

In India, dividends are taxed according to the investor's income tax slab rate under the head "Income from Other Sources"[reference:30][reference:31].

Example with Foreign Tax Credit:

Suppose your Indian slab rate is 30%:

You can claim credit for the US tax already paid under the Double Taxation Avoidance Agreement (DTAA)[reference:32]. (Verify current DTAA provisions on incometaxindia.gov.in.)

LRS and TCS: Sending Money Abroad

Under the Reserve Bank of India's Liberalised Remittance Scheme (LRS) , resident individuals can remit up to USD 250,000 per financial year for permitted purposes, including investments in foreign stocks, ETFs, and mutual funds[reference:33][reference:34].

TCS on LRS Remittances

Before money leaves India, your bank may collect Tax Collected at Source (TCS) under the LRS[reference:35]:

Key points to note (verify current TCS rates on the RBI or Income Tax portal):

• The Rs. 10 lakh limit is cumulative and includes all eligible LRS remittances, not just overseas investments[reference:37]
• TCS is not an extra tax, it works like advance tax and can be adjusted against your final tax liability when filing your ITR[reference:38]
• TCS collected is reflected in Form 26AS and can be claimed while filing your return[reference:39]

Form W-8BEN for US Investments

If investing in US stocks, bonds, or ETFs, you should submit Form W-8BEN to your overseas broker. This establishes your resident Indian status and ensures applicable India-US tax treaty benefits are applied correctly[reference:40].

Reporting Foreign Stocks in Your ITR

This is the most critical and most commonly missed obligation. If you are a Resident and Ordinarily Resident (ROR) taxpayer holding foreign assets, you must report them in your ITR, regardless of value[reference:41][reference:42].

Which ITR Form to Use?

Schedule FA: Foreign Assets

Schedule FA (Foreign Assets) is a mandatory disclosure section for resident taxpayers holding assets outside India[reference:44][reference:45].

What must be reported?

• Overseas brokerage accounts
• Foreign shareholdings (including US stocks, ETFs, and RSUs)
• Foreign bank accounts
• Other foreign financial assets[reference:46]

Reporting period: Schedule FA follows the calendar year (January 1 to December 31), while income tax returns follow the financial year[reference:47]. For AY 2026-27, you must report all foreign assets held at any time between January 1, 2025 and December 31, 2025, even if held for just one day[reference:48][reference:49].

Schedule FSI: Foreign Source Income

Any income earned from foreign assets (dividends, interest, capital gains) must be disclosed in Schedule FSI (Foreign Source Income)[reference:50][reference:51].

Schedule TR: Tax Relief

If claiming Foreign Tax Credit, report relief in Schedule TR of the ITR[reference:52].

Foreign Tax Credit: Form 44

If tax has already been deducted or paid in a foreign country, Indian resident taxpayers can claim Foreign Tax Credit (FTC) to avoid double taxation[reference:53].

Key Changes for 2026

Under the Income-tax Act, 2025 and Income-tax Rules, 2026:

• Form 44 has replaced Form 67 for claiming Foreign Tax Credit (FTC)[reference:54]
• Credit is available under the applicable DTAA[reference:55]

How to Claim FTC

1. Ensure the foreign income has been offered to tax in India[reference:56]
2. File Form 44 electronically on the Income Tax Department's portal before claiming the credit[reference:57]
3. Report foreign income in Schedule FSI and claim relief in Schedule TR[reference:58]
4. Retain supporting documents:
   • Foreign tax withholding certificates
   • Brokerage statements
   • Dividend statements
   • Tax payment receipts[reference:59]

The FTC available is limited to the lower of: the foreign tax paid or deducted, OR the Indian tax payable on the same income[reference:60].

The India-US DTAA: Avoiding Double Taxation

The Double Taxation Avoidance Agreement (DTAA) between India and the US prevents double taxation on the same income[reference:61].

Capital Gains

Under Article 13 of the India-US DTAA, each country may tax capital gains in accordance with its own domestic law[reference:62]. India taxes capital gains on US stocks as per Indian tax law (STCG at 20%, LTCG at 12.5%)[reference:63].

Key point: No capital gains tax is deducted in the US for Indian residents on publicly traded US stocks[reference:64]. India is the taxing jurisdiction.

Dividends

The US withholds 25% on dividends paid to Indian residents under the India-US DTAA (reduced from the standard 30% domestic rate)[reference:65][reference:66]. India taxes the dividend at the investor's slab rate, with credit for US tax paid.

Special Cases: GIFT City and Section 47(viiab)

US stocks traded through GIFT City may qualify for a capital gains tax exemption under Section 47(viiab) if:

• The shares are listed on an IFSC exchange
• Sold by a non-resident
• Sale consideration is received in foreign currency[reference:67]

If the exemption is unavailable, the shares are treated as unlisted securities, and the same STCG 20%) and LTCG 12.5%) rates apply[reference:68]. (Verify current applicability of Section 47(viiab) on incometaxindia.gov.in.)

RSUs and ESOPs: Special Tax Treatment

Restricted Stock Units (RSUs) and Employee Stock Options (ESOPs) from foreign employers have a two-stage tax treatment[reference:69]:

Key point: The cost of acquisition for capital gains purposes is the value on which salary tax was paid at vesting/exercise.

Reporting Foreign Assets: Common Mistakes to Avoid

Step 1: Assuming small investments don't need reporting**

"If I invested only Rs. 5,000 in a US stock, that's too small to report." This is incorrect. Schedule FA requires reporting regardless of value, even a Rs. 1 investment must be disclosed[reference:70].

Step 2: Using ITR 1 or ITR 4**

If you have foreign assets or foreign income, you cannot use ITR 1 or ITR 4. You must file ITR 2 or ITR 3[reference:71].

Step 3: Forgetting Schedule FA**

Many taxpayers report foreign income but forget to disclose the foreign assets themselves in Schedule FA. The reporting obligation arises from holding the foreign asset itself, not merely from earning income from it[reference:72].

Step 4: Missing the calendar year reporting period**

Schedule FA uses the calendar year (January 1 to December 31), not the financial year[reference:73]. For AY 2026-27, report assets held between January 1, 2025 and December 31, 2025.

Step 5: Not claiming Foreign Tax Credit**

If tax was withheld abroad, you can claim credit in India. Failing to file Form 44 (formerly Form 67) means missing out on this credit.

Step 6: Incorrect currency conversion**

Use the SBI TT buying rate on the last day of the month preceding the sale month, not the rate on the transaction date or the rate shown on your broker's statement[reference:74].

Penalties for Non-Compliance

2026 Tax Year Checklist for Foreign Stock Investors

• Review all foreign holdings held between January 1, 2025 and December 31, 2025
• Gather brokerage statements for all foreign accounts
• Collect dividend statements and tax withholding certificates
• Calculate capital gains using SBI TT buying rates
• Prepare Schedule FA with all foreign asset details
• Prepare Schedule FSI with all foreign income
• File Form 44 (if claiming Foreign Tax Credit)
• File ITR 2 or ITR 3 (not ITR 1 or ITR 4)
• Verify TCS credit in Form 26AS for LRS remittances

Where Tax Garden Helps

Tax on foreign stocks involves multiple moving parts: capital gains calculation with currency conversion, dividend taxation with DTAA credit, TCS on LRS remittances, and mandatory reporting in Schedule FA, Schedule FSI, and Schedule TR.

Tax Garden's CAs help you:

• Calculate capital gains on foreign stocks using prescribed SBI TT rates
• Claim Foreign Tax Credit using Form 44
• Prepare and file Schedule FA, Schedule FSI, and Schedule TR
• Ensure DTAA benefits are correctly applied
• File the correct ITR form (ITR 2 or ITR 3)
• Avoid penalties for non-disclosure of foreign assets

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Sources: Income-tax Act, 2025; Income-tax Rules, 2026; India-US Double Taxation Avoidance Agreement (DTAA), Article 13; RBI Liberalised Remittance Scheme (LRS) guidelines; CBDT notifications on Schedule FA, Schedule FSI, Schedule TR, and Form 44. Verify current rates, due dates, and reporting requirements on incometaxindia.gov.in before acting, as rules may be updated periodically. This article is general information on tax on foreign stocks in India and not a substitute for advice on your specific situation.