Taxation of US Stocks for Indian Residents: LRS, Withholding Tax, and Reporting

Buying a share of Apple, Google, or an S&P 500 index fund from India takes a few taps on any international broking app today, and it's easy to treat it like buying a domestic stock with an extra currency conversion step. It isn't. The money leaving India, the dividends the US company eventually pays you, and the gain when you sell, each sit under a different rule, and none of those rules apply themselves. Here's what actually happens at each stage for an Indian resident investing in US-listed stocks, and where retail investors most often lose money they didn't have to.

Sending Money to Invest: LRS and TCS on the Remittance

Money you send abroad to fund a US brokerage account moves out under the Liberalised Remittance Scheme (LRS), the RBI framework that lets a resident individual remit up to USD 250,000 in a financial year for a list of permitted purposes that includes investing in shares overseas. Your bank or authorised dealer collects Tax Collected at Source (TCS) on the remittance at the time it processes it, a provision that now sits within Section 394 of the Income Tax Act, 2025. For most purposes, including investment, the first Rs 10 lakh you remit in a financial year is free of TCS. Above that, investment remittances (the same category that covers gifts and maintaining a relative abroad) attract TCS at 20%, a noticeably steeper rate than the 2% charged on self-funded education or medical remittances.

That 20% isn't money you lose. It's tax collected in advance against your PAN, reflected in your Form 26AS and AIS, with a certificate (Form 27D) issued by the bank. You claim it back through the TCS schedule when you file your return, reducing your tax liability rupee for rupee, or you can declare it to your employer during the year if you're salaried, so it gets adjusted against your salary TDS instead of waiting for a refund. The one thing worth getting right at the counter: declare the purpose as investment accurately and consistently. Correcting a wrongly coded remittance after the money has already left is far more friction than confirming the purpose code before you send it.

US Dividend Withholding and the Treaty Rate

Once you hold US shares, any dividend the company pays gets taxed at source in the US before it reaches your broking account, because you're a non-US resident receiving US-source income. Left to the default statutory rate, that withholding would be steep. In practice, most retail Indian investors don't pay the default rate, because international brokers have you file a W-8BEN form at the time you open your account. That form certifies your foreign status and claims the benefit of the India-US DTAA, so the US applies a reduced treaty rate under the DTAA rather than the higher non-treaty default.

If you want the exact percentage that applied to a specific payment, don't rely on memory or a figure you saw somewhere online. Your broker's dividend or withholding statement will show precisely how much was withheld on each payout. That figure is also what you'll need later, so save every one of these statements as they come in through the year rather than trying to reconstruct them at filing time.

Getting the Withheld Tax Back: Form 67 and Foreign Tax Credit

This is the step most retail US stock investors miss entirely. The tax already withheld in the US on your dividend isn't a sunk cost. It's a genuine credit against the Indian tax you owe on that same dividend income, but you only get it if you actively claim it, through a separate filing called Form 67, before or alongside your return. Skip Form 67, and you end up bearing the US withholding and the full Indian slab-rate tax on the dividend, effectively taxed on it twice, not because the law intends that outcome, but because the credit doesn't apply itself.

The mechanism is the credit method: the dividend stays inside your total income in India, and only the Indian tax you'd otherwise owe on that specific income gets reduced, by the lower of the Indian tax on it or the tax actually withheld in the US, capped further by the DTAA rate if that works out lower still. Foreign currency amounts convert using the State Bank of India's telegraphic transfer buying rate for the month before the tax was paid, and you'll need to reconcile the US calendar tax year against the Indian financial year, since the two don't line up. Form 67 can technically be filed up to the end of the relevant assessment year, as long as your return itself was filed on time, but automated processing frequently denies or flags the credit if Form 67 wasn't on file before the return was processed. File it with or before your return rather than counting on the extended window to bail you out later.

How the Dividend and Any Gain on Sale Get Taxed in India

The dividend itself is foreign-source income, and it's taxed in India at your regular slab rate under income from other sources. It doesn't get the concessional treatment India gives some domestic instruments. You also need to report it at the gross amount, the full dividend before US withholding, not just what actually landed in your account after the US took its cut, the same way you'd report gross salary or gross interest that had TDS deducted from it. The Form 67 credit is what stops you from being taxed twice on that gross figure. It doesn't make the dividend exempt from Indian tax altogether.

Selling the shares later triggers capital gains, taxed under India's ordinary domestic capital gains rules based on how long you held them, the same short-term versus long-term framework that applies to any capital asset. The part that catches people out: US shares don't get the concessional treatment reserved for shares that pay STT on a recognised Indian stock exchange, even though they're genuinely listed on NASDAQ or NYSE. For Indian tax purposes, they fall into the same bucket as unlisted shares: long-term only once you've held them for more than 24 months, with short-term gains taxed at your slab rate and long-term gains taxed at 12.5% without any indexation benefit. A US stock you've held 14 months feels long-term the way an Indian stock would at that point, but for Indian tax purposes it's still short-term, taxed at your slab rate, until you cross 24 months. The Rs 1.25 lakh long-term gains exemption available on Indian listed shares and equity funds doesn't extend to US shares either, since that exemption is specific to the same STT-paid, exchange-listed category they don't belong to.

Schedule FA: The Disclosure Obligation You Can't Skip

Once you hold any foreign share, even a single share of one US company, disclosing it in Schedule FA (Foreign Assets) of your ITR becomes mandatory. This isn't scaled to how much you hold. A small position that generated no dividend all year still needs to be disclosed, and so does a holding you sold in full during the year, for the period you held it. The mistake people make constantly is assuming a small or short-lived holding falls below some reporting threshold. There is no threshold. The obligation is triggered by holding the asset, not by its size or the income it produced.

Non-disclosure is also treated as a separate, more serious problem from simply underpaying tax on a gain. It falls under dedicated legislation aimed specifically at undisclosed foreign income and assets, the Black Money Act, not the ordinary provisions that deal with a routine underreported domestic gain, and the consequences under that law are meaningfully more serious than a standard penalty for misreporting income. Treat Schedule FA as a checkbox you complete every year you hold any foreign asset, independent of whether it made money, lost money, or sat untouched.

1. Remit through LRS with investment declared correctly as the purpose to your bank, so TCS is applied at the right rate from the start.
2. File a W-8BEN with your international broker when you open the account, and keep it current, so US dividend withholding applies at the treaty rate rather than the higher default.
3. Save every dividend and withholding statement your broker issues through the year. It's your primary evidence of US tax paid when you claim the credit.
4. Convert the dividend and the tax withheld on it to rupees using the SBI telegraphic transfer buying rate for the month before the tax was paid, and reconcile the US tax year against the Indian financial year.
5. File Form 67 electronically before or alongside your ITR. Don't rely on the extended assessment-year deadline even though it technically exists.
6. Report the gross dividend, before US withholding, under income from other sources, and separately claim the foreign tax credit computed on the lower-of basis.
7. Work out the holding period on any US shares you sold using the 24-month foreign or unlisted-share threshold, not the 12-month rule that applies to Indian-listed shares.
8. Disclose every foreign shareholding in Schedule FA regardless of value, whether it paid a dividend, and even if you sold it completely during the year.

None of these steps are individually difficult, but they sit across different forms, different filing windows, and two tax systems that don't reconcile themselves. The investors who end up overpaying, or who get a rectification notice years later, are rarely the ones who did something wrong on purpose. They're the ones who stopped at the remittance and the dividend statement, and never circled back to Form 67 or Schedule FA. Treat US stock investing as five separate compliance items each filing season, not one, and check each against your broker's statements before you file.