Taxation of Foreign Stocks in India: A Complete Guide for Resident Investors

Taxation of Foreign Stocks in India: A Complete Guide for Resident Investors

Nowadays, global investing is becoming increasingly accessible to Indian residents with the help of various platforms available to directly invest in global securities. Now it’s easy to buy Apple shares or any other global securities for an Indian resident.

If you are holding any of the global securities and don’t know the tax consequences & mandatory reporting obligations, then this article is for you.

Who can invest?

Under the Liberalised Remittance Scheme (LRS), governed by the Reserve Bank of India (RBI), a resident individual can remit up to USD 250,000 per financial year for permissible current or capital account transactions.

This is the primary gateway for most retail investors to access international markets.

• Applicable to all resident individuals
• Covers direct investment in foreign equities, ETFs, and mutual funds.
• Transactions must be routed through an authorised dealer bank.

CAPITAL GAINS ON FOREIGN STOCKS

As per Section 2(42A) of the Income Tax Act, 1961

Shares of a company not listed on a recognised stock exchange in India, such as foreign stocks, are considered long-term capital assets if held for a period exceeding 24 months. While such a period of holding for domestic listed securities is just 12 months. 

Applicable Tax Rates for FY 2025–26

Holding Period	Gain Type	Tax Rate	Section
≤ 24 months	Short-Term Capital Gain (STCG)	As per the income slab	Normal provisions
> 24 months	Long-Term Capital Gain (LTCG)	12.5% (no indexation)	Section 112

Note: Foreign securities are not covered under Section 112A. Hence, the Rs 1.25 lakh LTCG exemption available on Indian listed equities does NOT apply to foreign stocks.

Setting Off Capital Losses

• Short-term losses (on any asset, including foreign stocks) can be set off against any capital gains, short-term or long-term.
• Long-term losses (from foreign or domestic assets) can only be set off against long-term capital gains.

Taxation of Dividends from Foreign Stocks

Dividends received from foreign equities and foreign mutual funds are fully taxable in India under the head “Income from Other Sources” and are taxed at the assessee’s applicable slab rate.

AVOIDING DOUBLE TAXATION & SECTION 91

One of the biggest concerns for any foreign investor is the fear of double taxation, but they don’t have to pay taxes to either of the countries.

The Indian government has proactively addressed this through a robust treaty network.

DTAA (DOUBLE TAX AVOIDANCE AGREEMENT)

India has signed DTAs with over 100+ countries, which provide relief in two ways:

1. Exemption Method: Income is taxed in one country while being fully exempt in the other.
2. Tax Credit Method: Tax paid in the foreign country is credited against the tax liability in India, ensuring that the assessee does not pay full tax twice.

SECTION: 91 Where there is no agreement

In cases where India has not signed a DTAA with a particular country, an Indian resident shall be entitled to the deduction from the Indian income tax payable by him of

• A sum calculated on such doubly taxed income at the Indian rate of tax or
• The rate of tax of the said country, whichever is lower, or
• At the Indian rate of tax, if both the rates are equal.

Foreign Mutual Funds and ETFs

Investment Type	Holding Period	Gain Type	Tax Rate
Foreign Mutual Funds / ETFs	≤ 24 months	STCG	Slab rate
Foreign Mutual Funds / ETFs	> 24 months	LTCG	12.5% (no indexation)
Indian MFs investing in foreign stocks	≤ 12 months	STCG	20%
Indian MFs investing in foreign stocks	> 12 months	LTCG	12.50%

Reporting and Compliance: Mandatory Disclosures

Schedules under ITR to be reported

Indian residents with foreign holdings must file ITR-2 or ITR-3 and fill the following schedules:

Schedule	Purpose
Schedule FA	Disclose all foreign assets (stocks, mutual funds, ETFs), which is mandatory even if no gains are earned
Schedule FSI	Report all income from foreign sources (dividends, capital gains, interest) country-wise.
Schedule TR	Claim tax relief for taxes paid abroad (Foreign Tax Credit)
Capital Gains Schedule	Report gains/losses from the sale of foreign securities

Key Compliances

1. Form 67: File before or along with ITR to claim Foreign Tax Credit under DTAA or Section 91
2. Tax Residency Certificate (TRC): Obtain from the Indian Income Tax Department if needed for DTAA claims.
3. Maintain proof of transactions, income, and taxes paid abroad, such as broker statements or tax certificates.

CONCLUSION

As an Indian investor, it has become easy to invest in global securities, but it’s also crucial to be compliant; hence, one should be aware while dealing with such kind of transactions.