Tax Implications of Investing in Us Stocks

Your US stock market income will still be taxed

When you invest in the US stock market, any income earned from these investments would be taxed. Like in India, the US market share prices also fluctuate, so you earn capital gains in the US also.

This is one more thing you need to understand when you are investing in US stocks. It does not matter whether you are investing in mutual funds or in equities or in indices like the Dow and the NASDAQ. These will generate income and hence will be taxed. Here we look at the tax implications of buying US shares, both in the case of dividends declared and in terms of the capital gains earned.

Tax implications of investing in US stocks

Investing in the US stocks has a number of tax implications and you need to understand how the tax will be imposed at multiple levels.

1. The primary point of taxation is when you remit funds abroad. Unlike TDS, this is not a tax on income, but it is a presumptive tax.
2. Let us say, you invest in a US company or in a US mutual fund and that investment pays dividend. Obviously, dividends are income and they would be taxed. In the US, any such dividend is directly taxed at the rate of 25%. So, if you receive $1000 as dividend then the net dividend you get on hand is just $750 as the US government deducts $250 as dividend tax. Does that mean you have to pay double tax i.e. in the US and in India on the same dividends?
3. The Double Taxation Avoidance Agreement (DTAA) is a mutual tax treaty that has been signed between the US and Indian governments. The impact of DTAA will be that when you file returns in India, the dividend is taxed as other income at the peak rate of tax applicable. For instance, if you are subjected to 30% tax on the dividend, you actually get offsetting credit for the 25% already paid to the US government (due to DTAA) and you only pay net tax of 5% in India.