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. 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. 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 residents (resident and ordinarily resident), global income is taxable in India. For FY 2025-26 (AY 2026-27) this follows from Section 5 of the Income-tax Act, 1961; from tax year 2026-27 (starting 1 April 2026) the Income-tax Act, 2025 applies with the same principle. 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.

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), are not listed on a recognised stock exchange in India and no STT is paid, so they are taxed like unlisted shares under Indian tax law. The holding period determines whether the gain is short-term or long-term.

Holding Period and Tax Rates

For transfers on or after 23 July 2024 (Finance (No. 2) Act, 2024), including all of FY 2025-26:

The 20% STCG rate under Section 111A applies only to STT-paid Indian listed equity, not to foreign shares.

Important: Unlike listed Indian shares, foreign shares do not get the Rs. 1.25 lakh exemption under Section 112A, because that exemption is only for STT-paid equity listed in India.

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:

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. For FY 2025-26, Rule 115 of the Income-tax Rules, 1962 uses the State Bank of India (SBI) Telegraphic Transfer (TT) buying rate, and for capital gains the specified date is the last day of the month immediately preceding the month in which the shares are sold. A common approach is:

1. Compute the capital gain in the same foreign currency (e.g., USD): sale consideration minus cost of acquisition and transfer expenses
2. Convert that gain into rupees at the SBI TT buying rate on the specified date

Some practitioners instead convert the cost at the rate for the purchase month. The rules do not spell out the method for residents, so apply one approach consistently and keep your workings.

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

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. (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 generally treated as speculative business income (Section 43(5)) and taxed at the taxpayer's applicable slab rate, which requires ITR-3.

Dividend Tax on Foreign Stocks

Dividends from foreign companies, like Apple, Microsoft, or Google, are taxable in India.

US Dividend Withholding

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

• Standard US withholding for non-residents: 30%
• Reduced rate under Article 10 of the India-US DTAA: 25% for individuals (after submitting Form W-8BEN)

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".

Example with Foreign Tax Credit:

Suppose your Indian slab rate is 30% (surcharge and cess ignored for simplicity):

Tax is on the gross $100, not the $75 you received. You can claim credit for the US tax already paid under the Double Taxation Avoidance Agreement (DTAA). (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.

TCS on LRS Remittances

Before money leaves India, your bank may collect Tax Collected at Source (TCS) under the LRS (Section 206C(1G) for FY 2025-26, thresholds as amended by the Finance Act, 2025):

The Finance Act, 2025 raised the threshold from Rs. 7 lakh to Rs. 10 lakh from 1 April 2025. From 1 April 2026 the Finance Act, 2026 cut TCS on education, medical and tour-package remittances to 2%, but remittances for investment stay at 20% above Rs. 10 lakh.

Key points to note:

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

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.

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.

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.

What must be reported?

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

Reporting period: Schedule FA follows the calendar year (January 1 to December 31), while income tax returns follow the financial year. 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.

Schedule FSI: Foreign Source Income

Any income earned from foreign assets (dividends, interest, capital gains) must be disclosed in Schedule FSI (Foreign Source Income).

Schedule TR: Tax Relief

If claiming Foreign Tax Credit, report relief in Schedule TR of the ITR.

Foreign Tax Credit: Form 67 and 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.

Which Form Applies

• FY 2025-26 (AY 2026-27): file Form 67 under Rule 128 of the Income-tax Rules, 1962. For a return filed under Section 139(1) or 139(4), Form 67 can be filed up to the end of the assessment year, but filing it before the ITR is safest
• Tax year 2026-27 onwards: under the Income-tax Rules, 2026, Form 44 (Rule 76) replaces Form 67
• Credit is available under the applicable DTAA

How to Claim FTC

1. Ensure the foreign income has been offered to tax in India
2. File Form 67 (Form 44 from tax year 2026-27) electronically on the e-filing portal
3. Report foreign income in Schedule FSI and claim relief in Schedule TR
4. Retain supporting documents:
   • Foreign tax withholding certificates
   • Brokerage statements
   • Dividend statements
   • Tax payment receipts

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

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.

Capital Gains

Under Article 13 of the India-US DTAA, each country may tax capital gains in accordance with its own domestic law. India taxes capital gains on US stocks as per Indian tax law (STCG at slab rates, LTCG at 12.5% after 24 months).

Key point: The US generally does not tax capital gains of non-resident individuals on publicly traded US stocks, so there is usually no US tax to credit. India is the taxing jurisdiction.

Dividends

The US withholds 25% on dividends paid to Indian resident individuals under Article 10 of the India-US DTAA (reduced from the standard 30% domestic rate). India taxes the dividend at the investor's slab rate, with credit for US tax paid.

Special Cases: GIFT City and Section 47(viiab)

Section 47(viiab) exempts certain transfers made on a recognised stock exchange in an IFSC (such as GIFT City) only when:

• The transfer is by a non-resident (or a specified fund)
• The securities are of the notified type and traded on the IFSC exchange
• The consideration is paid or payable in foreign currency

A resident Indian buying US stocks through a GIFT City platform does not get this exemption, so gains are taxed under the normal rules explained above. Check the tax treatment of the specific instrument before investing.

RSUs and ESOPs: Special Tax Treatment

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

For more detail see our guide on RSU tax in India.

Key point: The cost of acquisition for capital gains purposes is the FMV on which salary tax was paid at vesting or exercise (Section 49(2AA)).

Reporting Foreign Assets: Common Mistakes to Avoid

Mistake 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.

Mistake 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.

Mistake 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.

If you have missed Schedule FA in earlier years, read our guide to the FAST-DS 2026 foreign assets disclosure scheme before its 31 December 2026 deadline.

Mistake 4: Missing the calendar year reporting period

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

Mistake 5: Not claiming Foreign Tax Credit

If tax was withheld abroad, you can claim credit in India. Failing to file Form 67 (Form 44 from tax year 2026-27) can mean losing this credit. See our guide on claiming foreign tax credit with Form 67.

Mistake 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.

Penalties for Non-Compliance

Under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015:

The Rs. 20 lakh relief only removes the Rs. 10 lakh penalty. You still have to report every foreign asset.

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 67 (if claiming Foreign Tax Credit for FY 2025-26)
• File ITR-2 or ITR-3 (not ITR-1 or ITR-4)
• Verify TCS credit in Form 26AS and AIS 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 helps you:

• Calculate capital gains on foreign stocks using prescribed SBI TT rates
• Claim Foreign Tax Credit using Form 67 (Form 44 from tax year 2026-27)
• 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, 1961 (Sections 2(42A), 5, 17(2)(vi), 47(viiab), 111A, 112, 112A, 206C(1G)); Income-tax Rules, 1962 (Rules 115, 128); Income-tax Act, 2025 and Income-tax Rules, 2026 (Rule 76, Form 44); Finance Acts 2024, 2025 and 2026; Black Money Act, 2015; India-US DTAA, Articles 10 and 13; RBI LRS Master Direction. 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.

Frequently Asked Questions

How are short-term gains on US stocks taxed in India?

US stocks are not listed in India and no STT is paid, so they are treated like unlisted shares. If held for 24 months or less, the gain is short-term and added to your income at slab rates, not the 20% rate that applies to STT-paid Indian listed shares. If held for more than 24 months, the gain is long-term and taxed at 12.5% without indexation.

Do I have to report US shares in Schedule FA even if I did not sell them?

Yes. A resident and ordinarily resident taxpayer must report every foreign asset held at any time during the calendar year, including shares, RSUs, brokerage cash and foreign bank accounts, whether or not you sold anything. For AY 2026-27 the period is 1 January to 31 December 2025. Omitting it can attract a Rs 10 lakh penalty under the Black Money Act, subject to the relief for small movable assets.

Which form do I file to claim credit for US tax withheld on dividends for AY 2026-27?

For AY 2026-27 (FY 2025-26), foreign tax credit is still claimed by filing Form 67 on the e-filing portal, ideally before filing the ITR, along with Schedules FSI and TR. The new Form 44 applies only from Tax Year 2026-27 under the Income-tax Act, 2025. The credit is limited to the lower of US tax paid and Indian tax on that dividend.

Is TCS on LRS remittances for buying foreign stocks an extra tax?

No. TCS collected by your bank on LRS remittances above Rs 10 lakh in a financial year is an advance payment of your own tax. It appears in Form 26AS and AIS and is adjusted against your final liability when you file the ITR, with any excess refunded. The cost is the cash tied up until the refund comes.

Can I file ITR-1 if I hold foreign shares?

No. A resident individual with any foreign asset or foreign income cannot use ITR-1 or ITR-4. You must file ITR-2, or ITR-3 if you also have business or professional income, because only these forms contain Schedule FA, Schedule FSI and Schedule TR. This applies even if the foreign holding is small and produced no income during the year.

How is tax on RSUs from a foreign employer worked out?

RSUs are taxed twice. At vesting, the fair market value of the shares is a salary perquisite and your employer deducts TDS on it. When you later sell, the capital gain is the sale price minus that vesting value, and the holding period starts from the vesting date. The shares must also be disclosed in Schedule FA for as long as you hold them.