New Delhi: Taxation of Capital Gains from Investments in the US Market for Indian Residents
Indian residents are permitted to invest outside India in a range of financial assets, including direct equity, debt instruments, and mutual funds. Under the Liberalised Remittance Scheme (LRS), individuals can remit up to USD 2.5 lakh per financial year for such purposes. These remittances are subject to Tax Collected at Source (TCS), which can be claimed as credit against regular tax liability while filing the Income Tax Return (ITR).
Capital Gains on US Investments
Investments made in the US market are treated as capital assets for tax purposes in India. Similar to domestic investments, the taxability depends on the holding period:
Short-Term Capital Assets: Shares of US-listed companies held for less than 24 months. Gains from such investments are treated as short-term capital gains and taxed at the applicable income tax slab rate of the individual investor.
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Long-Term Capital Assets: Shares held for 24 months or more are classified as long-term capital assets. The long-term capital gains (LTCG) on such investments are taxed at a special concessional rate of 12.5 percent.
Advance Tax Liability
Since capital gains form part of total taxable income, investors are liable to pay advance tax on them. This has to be done in four quarterly instalments during the financial year. Non-payment or shortfall in advance tax may attract interest under the Income Tax Act.
Exemptions Available
For long-term gains earned on foreign equity, an investor may claim exemption under Section 54F of the Income Tax Act. This exemption is available if the net sale proceeds are reinvested into a residential property in India, within the prescribed timelines and conditions laid out in the law.
Disclosure Requirements in ITR
Indian taxpayers holding foreign assets must provide complete disclosures while filing returns. Specifically:
Details of foreign assets, including shares in US companies, must be disclosed in the FA (Foreign Assets) Schedule of ITR-2 or ITR-3.
This disclosure has to be made as of 31st December of the relevant year, even though the ITR pertains to the financial year ending on 31st March.
Any income derived from such foreign assets also needs to be reported under the appropriate income heads in the return.
Penalties for Non-Disclosure
Failure to report overseas investments and income may attract severe penalties and prosecution under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. Hence, taxpayers are strongly advised to comply with disclosure requirements while filing their returns.
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