Tax on US Stocks for Indians — DTAA and Form 67 Explained

Atmabhan Pandit (Shrikant Bhosale)
Founder, TWIST POOL Labs  ·  TAC Research  ·  NanoCERN Unit, Pune
First-principles finance educator  ·  10+ years in Indian capital markets
 ORCID: 0009-0003-1953-7932

Hundreds of thousands of Indians now invest in US stocks via platforms like Vested, INDmoney, and HDFC Securities Global. Most have no idea how the tax works — and the complexity of double taxation makes this the most frequently misunderstood area of Indian investor taxation.

1. The Double Taxation Problem

When you earn dividends or capital gains from US stocks:

1. The US government taxes the income (withholding tax)
2. The Indian government taxes the same income (as your global income is taxable in India)

Without a tax treaty, you would pay tax twice. Fortunately, India and the US have a Double Taxation Avoidance Agreement (DTAA) — signed in 1989 — that prevents this.

2. Tax on US Stock Dividends for Indians

US side: The IRS withholds 25% on dividends paid to Indian residents. However, under the India-US DTAA, the withholding rate is reduced to 15% — you must submit a W-8BEN form to your broker declaring your Indian residency.

W-8BEN: This form establishes your non-US status. All major platforms (Vested, INDmoney) handle W-8BEN automatically during account opening.

India side: US dividends are taxable in India at your income tax slab rate (same as Indian dividends post-DDT). Declare in Schedule OS.

Avoiding double tax: Claim the 15% US tax deducted as a Foreign Tax Credit in your Indian ITR using Form 67.

3. Tax on US Stock Capital Gains Tax in India for Indians

US side: For Indian residents, the US does NOT withhold capital gains tax. Capital gains from US stocks are taxable only in India.

India side: The rules mirror Indian holding period rules for unlisted/foreign securities:

• Held ≤24 months: Short-term gain → slab rate
• Held >24 months: Long-term gain → 12.5% without indexation (post-Budget 2024)

Note: The 24-month rule applies to foreign stocks, not 12 months (which applies to listed Indian equity). This is a common error.

4. LRS (Liberalised Remittance Scheme) and TCS

To invest in US stocks, you must remit money abroad under RBI & Interest Rates Explained‘s LRS (maximum $2,50,000/year per individual).

TCS (Tax Collected at Source) on LRS: From October 2023, remittances above ₹7 lakh/year under LRS attract TCS at 20%.

• TCS is NOT a final tax — it is advance tax collection. You get full credit when filing ITR.
• For investors: TCS paid on foreign remittance reduces your advance tax or final tax liability.

TCS-exempt: Education and medical remittances via LRS have lower/nil TCS rates.

5. Form 67: How to Claim Foreign Tax Credit

Form 67 must be filed before filing your ITR to claim credit for foreign taxes paid (the 15% US withholding on dividends).

Steps:

1. Collect Form 1042-S from your US broker (shows dividends and US tax withheld)
2. File Form 67 on the income tax portal (under e-File → Income Tax Forms → Form 67)
3. Enter: Country (USA), Type of income (Dividend), Amount, Tax withheld (in USD, converted to INR at RBI rate)
4. Claim the credit in your ITR Schedule FSI and Schedule TR

Limitation: Foreign tax credit cannot exceed the Indian tax on that income. If US withheld 15% but India’s tax is 10% (because your slab is 10%), you can only claim 10% credit.

Summary: US Stock Tax at a Glance

The Smart Friend’s Verdict

US stock investing is accessible to every Indian via LRS — but the tax compliance is non-trivial. Submit W-8BEN to reduce withholding to 15%. File Form 67 before ITR to claim the foreign tax credit. Declare all dividends and capital gains in the correct schedules of ITR-2.

Miss any of these steps and you either overpay tax or underreport income — both are bad outcomes.

Back to Tax-Loss Harvesting for strategies to reduce your overall tax burden.

Frequently Asked Questions