Investing in US stocks from India involves understanding the tax implications both in the US and in India. Here’s a detailed overview of how taxes are calculated for Indian residents investing in US stocks:

1. Taxation in the US

**Dividend Income:**
– Dividends received from US companies are subject to a flat withholding tax rate of 25% as per the Double Taxation Avoidance Agreement (DTAA) between India and the US. This tax is deducted at source by the US.

**Capital Gains:**
– There is no capital gains tax levied by the US on the sale of stocks by non-residents. The tax implications arise only in India.

2. Taxation in India

**Dividend Income:**
– Dividends received from US stocks are taxed in India. Since the US has already deducted a 25% tax, Indian residents can claim this as a Foreign Tax Credit (FTC) under the DTAA to avoid double taxation.
– The remaining tax liability in India will depend on the individual’s tax slab. If the individual falls in a higher tax bracket than 25%, they will need to pay the additional tax over and above the 25% already deducted by the US.

**Capital Gains:**
– **Short-term Capital Gains (STCG):** If the holding period of the US stocks is less than 24 months, the gains are considered short-term and taxed at the individual’s applicable income tax slab rates.
– **Long-term Capital Gains (LTCG):** If the holding period is 24 months or more, the gains are considered long-term and are taxed at 20% with the benefit of indexation.

Example Calculations

**1. Dividend Income Example:**

Assume you receive $1,000 in dividends from your US stock investments.

– **US Withholding Tax:** 25% of $1,000 = $250
– **Net Dividend Received:** $750

Now, suppose your total income puts you in the 30% tax bracket in India.

– **Indian Tax Liability:** 30% of $1,000 = $300
– **Less: Foreign Tax Credit:** $250
– **Net Tax Payable in India:** $300 – $250 = $50

**2. Capital Gains Example:**

Assume you sell US stocks and realize a capital gain of $5,000.

– **Short-term (holding period less than 24 months):**
– If you fall into the 30% tax bracket: $5,000 x 30% = $1,500

– **Long-term (holding period 24 months or more):**
– Tax with indexation (assuming indexation benefit): $5,000 x 20% = $1,000

Reporting and Filing

– **Form 67:** To claim the Foreign Tax Credit, you need to fill out Form 67 and submit it before the due date of filing your income tax returns in India.
– **Income Tax Return (ITR):** Report your global income, including income from US stocks, in your ITR (usually ITR-2 or ITR-3 for individuals).

Compliance

– **FEMA Compliance:** Ensure compliance with the Foreign Exchange Management Act (FEMA) guidelines, especially the Liberalized Remittance Scheme (LRS) which allows Indian residents to remit up to $250,000 per financial year for investments.

Conclusion

Investing in US stocks from India requires understanding and adhering to tax regulations in both countries. Proper reporting and taking advantage of the DTAA can help in optimizing the tax liability. It is advisable to consult with a tax professional or financial advisor to ensure compliance and efficient tax planning.