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Taxation - Foreign

Foreign Exchange Explained.

Foreign Stocks​

ITR Form to disclose foreign investments​

You should choose the right ITR form to report these details in order to avoid any Income Tax notice. If a taxpayer has foreign investments, he or she will have to disclose the same in the Schedule of Foreign Assets (FA) using the Form ITR-2 or ITR-3.

Who should declare foreign assets?​

Taxpayers need to mandatorily declare all their foreign assets in the ITR, and that also includes investments in US stocks or assets in any other countries. If an individual has taxable income that is below the basic exemption limit of Rs 3 lakh but has stocks in foreign countries, he or she will still need to file the ITR to disclose the stock holdings.

Foreign stocks have to be declared in the ITR every year until the taxpayer has their name on it. In case of failure to declare the foreign stocks or any foreign asset like real estate, bank deposits, accounts, or insurance policies, the taxpayer will be liable to inspection by the tax department under the Black Money and Imposition of Tax Act, 2015. Besides the scrutiny, they can be penalised with up to Rs 10 lakh fine.

Taxation for foreign investments and stocks​

In India, when a foreign stock is sold after a term of two years, the profit earned from it is treated as long-term capital gains (LTCG) and is taxed at 20 percent (surcharge extra), with indexation benefit. While short-term capital gains (STCG) are taxed at the income slab rates. There is no tax liability on capital gains for the foreign-born.

Also, the dividend income earned on foreign investments is taxed at the pre-defined tax slab rates in India. In the US, when the dividend is paid, the government withholds a flat 25 percent as tax. India has a Double Taxation Avoidance Agreement (DTAA) with the US, due to which one can claim the tax paid in the US to avoid the tax liability in India while filing the ITR.

Income Tax Return Filing: Invested in foreign assets and stocks? Follow these steps to declare holding in ITR | Zee Business

Understanding taxation on US stocks in India: A guide for investors

Recent changes in tax regulations​

Budget 2024 brought significant changes to benefit investors like you:

  • Reduced long-term capital gains tax from 20% to 12.5% for holdings over 24 months
  • Removed indexation benefits while maintaining parity with Indian equity taxation
  • Added a 20% Tax Collected at Source (TCS) for annual remittances above Rs. 7 lakh (Changed to 10 lakh in budget 2025)
Type of IncomeTax in the USTax in IndiaHolding PeriodTax Rate in India
Short-term capital gains*N/AYes<24 monthsTaxed at applicable income slab rate
Long-Term capital gains*N/AYes>24 monthsTaxed at 12.5% plus applicable surcharge and cess

Dividend for msft stocks​

Basically the only issue will come with dividends (this is missed in 26AS and needs to be declared to avoid discrepancy), and while declaring we give a tax for ~31.2% in the portal afaik. However the US laws state that 25% to be deducted for indians earning dividends in US firms. So form 67 needs to be filled in for taking back the extra 25% we paid for the dividends.

Inward remittances​

Inward Remittance Purpose Code​

  • P1006 - Business and management consultancy and public relations services taxation
  • P0802 - Software consultancy implementation other than those covered in SOFTEX form

Outward Remittance Purpose Code​

  • NEW PURPOSE CODES FOR REPORTING FOREX TRANSACTIONS PAYMENT PURPOSES - 00 Capital Account - S0001 - Indian investment abroad -in equity capital (shares)

NRI Taxes​

Income Tax for NRI

An NRE account is a bank account opened in India in the name of an NRI, to park his foreign earnings; whereas, an NRO account is a bank account opened in India in the name of an NRI, to manage the income earned by him in India. These incomes include rent, dividend, pension, interest, etc.

Interest earned on an NRE account and FCNR account is tax-free. Interest on NRO accounts is taxable in the hands of an NRI.

  • NRE - Non-Resident External
  • NRO - Non-Resident Ordinary
  • Both accounts are rupee-denominated bank accounts for non-resident Indians (NRIs).

Purpose

  • NRE account: For depositing foreign earnings in India
  • NRO account: For managing income earned in India, such as rent, dividends, or pensions

Taxation

  • NRE account: Interest earned is tax-free in India
  • NRO account: Interest earned is subject to Indian taxes

Repatriation

  • NRE account: Funds can be freely repatriated to the NRI's country of residence
  • NRO account: Funds can be repatriated up to $1 million per financial year after taxes are paid

How to file ITR as an OCI on Indian income? | Mint

Overseas Citizen of India (OCI) card - How to Register for OCI card - Check the Fees & Status

Liberalised Remittance Scheme (LRS)​

Under the Liberalised Remittance Scheme (LRS), all resident individuals are allowed to freely remit up to USD 2,50,000 per financial year (April – March) for any permissible current or capital account transaction or a combination of both. The Scheme is not available to corporates, partnership firms, HUF, Trusts etc.

What is the current TCS (Tax Collected at Source) rate for LRS?​

It is 5% of the remittance amount above INR 7 Lakhs. From October 1, 2023 onwards, the rate will be 20% of the remittance amount. TCS (Tax Collected at Source) amount will be visible on your Form 26AS.

Remittances​

  • Best TT Rates with Indian Bank both inward and outward - Indian Overseas Bank (IOC) (Public Sector Bank)
  • Skydo is best for receiving money of $2000 ($19) and $10000 ($29)

Introduction​

Indian Overseas Bank (IOC)​

IOB International Remittance: Fees, charges and transfer time - Wise

SBI​

  • Rs. 50/- is levied by SBI in India for handling inward remittances.
  • No SWIFT code of SBI Dantewada Branch (Have to use a parent branch)
  • Internet banking based Forex Outward Remittance Scheme FAQs
    • Retail forex outward remittance upto a value equivalent of USD 5000 per transaction,max 4 transactions per month i.e. USD 2,40,000/- per calendar year, offered to our retail customers. No minimum amount of remittance is stipulated.
    • Restriction on initial remittance to overseas beneficiary within 4 days of beneficiary activation is Rs.1,00,000/-.
    • USD 10 equivalent in INR applicable at Bank's T.T. Selling Card Rate for the day (rounded to the nearest Rupee) plus applicable Statutory Service Tax, to be recovered up-front at the time of submission of application form, covering all inclusive cost upto the Bank of the Beneficiary only. All subsequent Beneficiary Bank charges are to the account of the beneficiary.

Foreign Outward Remittance (Wire Transfer) - RemitNow (HDFC)​

Wise / TransferWise​

Others​