As the tax season approaches, Indian residents investing in US stocks/ RSUs face a distinct set of tax implications. With the Indian Income Tax Department sharpening its scrutiny of foreign income and assets, accurate disclosure and timely compliance have become more important than ever.
Here is a detailed explanation of the key points for Indian taxpayers holding US stock investments for the Financial Year 2025-26 (Assessment Year 2026-27).
Who Needs to File and Which ITR Form Applies to US Stock Investments/RSUs?
If you are a Resident Indian and hold investments in US stocks, you are required to disclose these foreign assets and any income earned from them in your Indian income tax return.
Taxpayers with foreign assets or foreign-source income are not eligible to file returns using the ITR-1 (Sahaj) or ITR-4 (Sugam) forms. Instead, they must file their returns using ITR-2.
Reporting Your Foreign Assets
The Income Tax Act, further strengthened by the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, mandates the disclosure of foreign assets by Indian residents.
How to declare foreign shares In ITR?
- You must report foreign investments and stocks in Table A3 of Schedule FA in your ITR.
- Convert the value of all foreign assets into Indian Rupees before reporting.
- Dividends from foreign stocks must be reported as “Income from Other Sources” in the year you receive them.
- Dividends are taxable in the year they are earned, even if you do not bring the money to India.
- If tax was already deducted in the foreign country, you can claim that tax as a credit while filing your ITR to avoid double taxation.
- You must disclose all foreign assets held at any time during the calendar year.
- You must file an ITR regardless of your income slab if you hold any foreign asset at any time during the financial year.
Mandatory Disclosure in Schedule FA
If you hold US stock investments, completing Schedule FA (Foreign Assets) in your ITR-2 is compulsory. This disclosure requirement applies to all Resident and Ordinarily Resident (ROR) taxpayers with foreign holdings and is not optional. The details should be reported under Investments in Foreign Equity/Debts in Table A3 of Schedule FA of the income tax return.
Details That Need to Be Reported
Taxpayers are required to disclose comprehensive information relating to their foreign assets, including:
- Foreign bank accounts
- Financial interests such as shares held through US brokerage accounts
- Any other assets located outside India
The disclosure typically includes details such as:
- Country name and code
- General information about the foreign entity, such as name, address, zip code, nature of the entity
- Date of acquisition of equity or debt instrument
- Initial value of the investment
- The peak value of the investment during the accounting period
- The closing value of the investment as at the end of the accounting period
- Gross interest received
- Total gross proceeds from sale or redemption of investment during the accounting period
Such information is required to be disclosed after converting into Indian currency.
Rate of exchange for conversion
For conversion of the foreign asset or foreign-sourced income in Indian currency, the rate of exchange shall be “telegraphic transfer buying rate”. This can be got here : https://www.rbi.org.in/scripts/ReferenceRateArchive.aspx
When to Report?
The reporting of foreign currency or assets in the ITR of FY 2025-26 will depend upon the accounting periods of the foreign country as below:
- 1st January 2025 – 31st December 2025: If the foreign assets, foreign accounts, etc. are acquired between 1st January 2025 – 31st December 2025 and the assets/accounts belong to the foreign country/jurisdiction where calendar year is considered for the closing of accounts and return filings. For US Stocks, this will be accounting period.
- 1st April 2025 – 31st March 2026: If the foreign assets, foreign accounts, etc. are acquired between 1st April 2025 – 31st March 2026, and the assets/accounts belong to the foreign country/jurisdiction where the financial year is considered for the closing of accounts and return filings.
Other reporting requirements
The resident individuals holding U.S. stocks during the financial year, i.e. as of 31st March 2026, are required to fill the asset-liability schedule, i.e. Schedule AL (if total income > Rs 50 lakh), in addition to Schedule FA.
The taxpayer shall report assets and liabilities in Schedule AL as below:
- Immovable assets- Land and building
- Financial assets- Bank deposits, shares and securities, insurance policies, loans and advances given, cash in hand
- Movable assets– Jewellery, bullion, vehicles, paintings, artworks,
- Taxpayer’s interest in the assets of a firm or association of persons (AOP) as a partner or member, respectively
- Liability relating to the above assets
Taxation of Earnings from US Stock Investments
Income earned from US stock investments falls into two categories for tax purposes:
- Capital Gains – arising from the sale of US stocks or ETFs
- Dividend Income – earned when US companies distribute dividends to shareholders
Dividends:
- Dividends received from US stock investments are taxed in India as “Income from Other Sources.” This income will be added to the total taxable income and taxed at applicable slab rates.
- Withholding Tax: The US government deducts a withholding tax of 25% on dividends
Claiming Foreign Tax Credit (FTC) to Avoid Double Taxation
The Double Taxation Avoidance Agreement (DTAA) between India and the United States helps ensure that investors are not taxed twice on the same income earned from US stock investments.
Under this framework, taxes deducted or paid in the US such as withholding tax on dividends can be claimed as a Foreign Tax Credit (FTC) against Indian tax liability.
Action Required to Claim Foreign Tax Credit (FTC)
To claim credit for taxes paid in the US, taxpayers must file Form 67 on or before filing their Income Tax Return. This is a mandatory requirement for availing Foreign Tax Credit benefits under the India–US DTAA.
The credit available is restricted to the lower of:
- The tax paid in the United States, or
- The tax payable in India on the same income
In addition, details of the foreign income earned and taxes paid abroad must also be disclosed in Schedule FSI (Foreign Source Income) of the income tax return. This information can be found in Form 1042-S which will be available in the US brokerage Account.
Taxation of Earnings from US Stock Investments
- Capital Gains:
- Long-Term Capital Gains (LTCG): US stock investments held for more than 24 months, qualify for long-term capital gains and are taxed at a flat rate of 12.5%, without the benefit of indexation.
- Short-Term Capital Gains (STCG): US stock investments held for up to 24 months are treated as short-term capital gains and are added to the total income and taxed as per slab rates.
- Crucial Conversion: All gains and the original purchase costs of the US stock investments need to be converted into Indian Rupee as on the date of each transaction (purchase or sale).
Essential Documents for Reporting US Stock Investments
To ensure accurate reporting and a hassle-free tax filing process, taxpayers with US stock investments should keep the following documents readily available:
- Brokerage account statements showing purchase, sale, dividend, and holding details
- Capital gains statements reflecting realised gains or losses from stock sales
- Dividend statements issued by US companies or brokerage platforms
- Form 1042-S showing tax withheld in the United States on dividend income
- Bank statements evidencing foreign remittances and investment transactions
- Foreign asset valuation details, including the peak value of investments during the financial year
- Tax payment proofs or withholding tax documents for claiming Foreign Tax Credit (FTC)
- Exchange rate details used for converting foreign income and taxes into Indian Rupees
- Previous years’ tax filings, especially where carried-forward foreign losses or disclosures are involved