Tax on US Stocks for Indian Investors: Dividends, Gains

A US stock portfolio generates exactly two kinds of taxable events — dividends and sales — but they pass through two tax systems on the way to your bank account. Get the order right and you pay what you owe, once. Get it wrong and you either overpay through withholding you never claim back, or underreport a gain the annual information statement already knows about. Here is the full picture for a resident Indian investor.

Dividends: 25% US withholding, then slab rates in India

When an American company pays you a dividend, the US broker withholds tax at source before the money lands. The domestic US rate for a non-resident is 30%, but the India-US tax treaty cuts it: Article 10 allows 15% of the gross amount where the shareholder is a company holding at least 10% of the payer, and 25% of the gross amount in all other cases — which covers every individual investor. (Source: US-India tax convention, Article 10, as published by the IRS; IRS withholding on non-resident aliens)

The 25% is not automatic. Your broker applies it only after you file Form W-8BEN — the certificate of foreign status — in your profile. Until then, 30% applies. The form needs your Indian PAN as the foreign tax identifying number and your country of residence (India). It stays valid until 31 December of the third calendar year after signing, after which brokers nudge you to re-certify.

The US does not stop there, and neither does India. Dividends are taxable in India at your slab rate as income from other sources. The 25% taken in the US is not an extra cost — it is advance tax that you credit back under the double-taxation relief mechanism, section 90 of the Income-tax Act, using Form 67.

A worked example with round numbers. You hold shares paying $1,000 of dividends in a year. The US withholds 25% — $250 — and $750 reaches you. You convert at, say, Rs 84 to the dollar: Rs 63,000 received, Rs 21,000 withheld. In your ITR, the full Rs 84,000 is taxable at your slab. If that slab is 30%, your Indian tax on the dividend is Rs 25,200; the Rs 21,000 already paid in the US is credited via Form 67, and you pay only Rs 4,200 more. If your slab rate were lower than the US withholding, the excess US tax above your Indian tax on that income is simply not refundable — the credit is capped at the Indian tax on that specific income.

Capital gains: only India taxes them, on a 24-month clock

Selling is friendlier. The United States does not levy capital gains tax on a non-resident alien's gains from US stocks — no US return, no US bill. The gain is taxable in India alone.

Since the 23 July 2024 amendments, shares of foreign companies follow a 24-month holding rule: sell within 24 months of buying and the gain is short-term, taxed at your slab rate; hold beyond 24 months and it is long-term, taxed at a flat 12.5% without indexation. (Source: Income-tax Act capital gains amendments effective 23 July 2024; analysis of the enacted changes by Deloitte's taxathand)

Two common confusions. First, the Rs 1.25 lakh annual exemption you read about for equity gains belongs to section 112A — it covers Indian-listed shares and Indian equity mutual funds only. Foreign shares get no such buffer; the 12.5% applies from the first rupee of long-term gain. Second, the 20% short-term rate you see for equity applies to Indian shares settled with securities transaction tax. Your foreign shares carry no STT, so short-term gains land at your normal slab rate.

The gain itself is computed in rupees, which is where currency quietly changes your tax. Cost and sale proceeds are both converted at the exchange rate on their respective dates. Buy at $100 when the dollar is Rs 82 (cost Rs 8,200), sell at $110 when it is Rs 86 (proceeds Rs 9,460) — your taxable gain is Rs 1,260, of which Rs 60 is pure currency appreciation, taxed exactly like the share gain. A depreciating rupee turns flat stock prices into taxable gains. Keep the date-wise conversion records; your broker's statement plus a historic RBI reference-rate table does the job.

One side benefit of the US system: no withholding at all on sale proceeds. When you repatriate the money, the broker sends the full amount — unlike dividends, nothing is docked on the way out.

Form 67: the two-minute form everyone forgets

The foreign tax credit is not automatic. Rule 128 of the Income-tax Rules requires a resident claiming credit for foreign tax to file Form 67 — a statement of foreign income and foreign tax paid — electronically on the income-tax portal, before the due date for filing the return of income. (Source: Rule 128, Income-tax Rules 1962; Form 67 user manual, incometax.gov.in)

Miss the deadline and the credit is denied even though the tax was genuinely withheld — courts have occasionally forgiven late filers, but the safe path is simple: file Form 67 before the ITR due date, then file the return.

What you need at hand: country (United States), the treaty article (dividends — Article 10), the gross foreign income, the tax withheld, and evidence — the broker's annual withholding statement (the Form 1042-S the US broker issues, or the platform's tax certificate). Small withholding amounts on dividends still deserve the form; the credit compounds across years.

One forward-looking note: the new Income-tax Act 2025, which takes over from AY 2027-28, carries the foreign tax credit framework forward in a renumbered form, and practitioners report a new Form 44 statement in the draft rules. The mechanics — statement before the return, credit capped at Indian tax — carry over. Watch the final notifications before FY 2026-27 filing season. (Source: practitioner coverage of the Income-tax Act 2025 tax-credit rules; final forms were still in draft at the time of writing)

The estate-tax angle most investors miss

Income tax is not the only US tax that touches your portfolio. Shares of US companies are US situs assets: on the death of a non-resident owner, everything above a $60,000 exemption can face US federal estate tax at graduated rates reaching 40%. India and the US have no estate tax treaty to soften this. (Source: IRS guidance on estate tax for nonresidents not citizens of the United States)

A $400,000 US stock portfolio therefore carries a latent 40% exposure on $340,000 of value, payable to the IRS by your heirs, independent of anything India taxes. If your foreign portfolio is heading past roughly $60,000 of US-domiciled assets, this asymmetry — not income tax — is the strongest argument for holding the international allocation through India-domiciled funds instead. Indian mutual funds are not US situs assets.

Losses, set-off and record-keeping

Losses on US stocks behave like ordinary capital losses. Short-term losses first absorb short-term gains, then long-term; long-term losses absorb only long-term gains. Leftover losses carry forward for eight assessment years, provided you filed your return by the original due date.

The record that saves you: a running sheet of every buy, sell, dividend and conversion date with the rupee value on each date. Brokers give dollar statements; the rupee conversion discipline is on you. Annual information statements now routinely flag foreign remittances (the LRS trail in your Form 26AS is visible to the tax department), so the days of quietly ignoring a foreign portfolio are over.

Conclusion

Three rates and one form sum it up: 25% withheld on dividends, your slab on short-term gains, 12.5% beyond 24 months, and Form 67 before the ITR due date to pull the withholding back. None of it is exotic — but every piece of it is date-driven, and the dates live in your broker's statements, not your memory.

This is educational content, not investment or tax advice — have a qualified tax professional review your specific facts before filing.