Understanding Taxation Of Investment In Foreign Stocks

Foreign stocks or mutual funds are being increasingly considered these days so as to diversify investors' portfolio as well as to gain from the gains in the US and other markets. Also, brokerages have gone that extra mile to provide customers with platforms that enable them in making such investments easily.

Understanding Taxation Of Investment In Foreign Stocks

For taxatio of foreign stocks

If the holding period is of over 2 years then LTCG tax is applied else it is short term capital gains or losses. Capital gain from sale of long term capital assets shall be taxed at the rate of 20% with the indexation benefit on purchase price or at 10% without such indexation benefit.

In case of short term capital assets, the rate of taxation shall be as per the slab of the concerned investor.

Taxation basis the investors' tax-residency status

For non-residents or resident but not ordinarily resident (RNOR)- Income earned outside is in a general case not taxable

For investors who are counted as Resident and Ordinarily Resident (ROR) in India,their income from investment in foreign stocks is taxable in India.

Taxation of foreign stocks if allotted under ESOP or employee stock option plan

Here the taxation applies at the time of allotment of shares as well their sale is executed. And here the income is determined basis the fair value of shares and the cost paid to acquire such shares, this difference is then taken as part of salary income and taxed under the head salary income.

At the time of sale, sale proceeds less the amount employed in acquisition will be the capital gains accruing. And here are other factors : such as tax-residency status at the time of allotment, during the period from grant to vest dates as well as acquisition cost.

Taxation of dividend income from foreign stocks:

These are taken as part of income from other sources. Here tax treaty comes to play a significant role and careful and diligent understanding is required to claim benefits under the appropriate tax treaty.

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