Want to invest in overseas market? Here are the taxation rules

Want to invest in overseas market? Here are the taxation rules

Before investing, it is important to understand about the taxation rules overseas. Here are the details.

Want to invest in overseas market? Here are the taxation rules Want to invest in overseas market? Here are the taxation rules

International investing has become popular as it not only gives geographic diversification but also hedges a portfolio against currency fluctuations. Though one can invest in the stocks of several countries, but investing in US stocks is considered the most popular as the New York Stock Exchange (NYSE) and NASDAQ are the world’s largest stock exchanges. By opening a brokerage account abroad, either through a domestic or foreign brokerage, one can now invest in some of the world’s largest technology companies like Apple, Tesla, Starbucks, Nike and Meta (Facebook), among others.

You can also invest in overseas markets through international mutual funds that are available in India. The biggest advantage of these international funds is that you can invest in rupees without getting into the hassle of remittances and forex charges. But before investing it is important to understand about their taxation rules. Here are the details:

According to Vested Finance, which is a registered investment advisor with the US Securities and Exchange Commission (SEC), long term capital gains tax rate 20 per cent (plus the applicable surcharges and cess fees) is levied on sales of stocks if held for over 24 months. For ETFs, the long-term threshold is 36 months. If investment is held for less than 24 months and profit is booked, then short term capital gains is charged according to your income tax slab. 

Moreover, dividends are taxed in the US at a flat rate of 25 per cent. The broker paying the dividend will subtract the 25 per cent taxes before distributing the remaining 75 per cent to the investor. However, one can take credit for the dividend tax paid when filing taxes in India.

“For investment in US (or foreign) equities, there are no special tax rates, etc. Foreign holding is an asset like gold and taxed accordingly. As we are holding foreign assets here, we need to ensure funds utilised are from sources regularly reported in Income Tax Return,” says Sujit Bangar, founder of the online portal

What happens if one inherits foreign shares? Bangar says, “As an Indian, we invest in foreign assets via underline instrument like global funds, for example, Edelweiss US Technology fund. In these types of investments, there won’t be any incidence of inheritance tax or estate duty. If individual is holding US shares directly in individual capacity, then after his/her death, there would be incidence of inheritance tax. But in such situation too individual will get complete credit in India for taxes withheld in US due to DTAA between India and USA.”

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Published on: Jan 24, 2022, 3:11 PM IST
Posted by: Tarab Zaidi, Jan 24, 2022, 2:56 PM IST