As a resident Indian, you pay tax in India on your worldwide income. Shares and funds held abroad are no exception. The US mostly stays out of it, with one important exception: dividends.
Capital gains: taxed only in India
The US does not tax capital gains made by non-resident investors on ordinary shares and ETFs. India does, and the rules depend on how long you held the investment.
| Held for | Type | Tax in India |
|---|---|---|
| 24 months or less | Short-term | Added to your income, taxed at your slab rate |
| More than 24 months | Long-term | 12.5%, without indexation |
Two differences from Indian shares catch people out. The ₹1.25 lakh yearly exemption on long-term gains applies only to listed Indian equity, not to foreign shares. And the holding period is 24 months, not 12. Gains are worked out in rupees, using the exchange rate on the dates you bought and sold, so the currency move is part of your taxable gain.
Dividends: taxed in both, credited once
US companies and US-domiciled ETFs withhold tax on dividends before paying them out. With a Form W-8BEN on file, the rate for Indian residents falls from 30% to the treaty rate of 25%.
India then taxes the full dividend at your slab rate. The tax treaty lets you claim credit for the US tax already paid, up to the Indian tax on that income. In practice, at the 30% slab, you pay roughly 5 to 6% more in India on top of the 25% withheld. To claim the credit, you or your CA file Form 67 on the income tax portal.
What it looks like in a return
- Schedule CG for capital gains on foreign shares and ETFs.
- Schedule FSI and TR for foreign income and the tax credit claimed.
- Schedule FA for every foreign holding and account, on a calendar-year basis, even if you sold nothing.
Most people with foreign assets file ITR-2, or ITR-3 if they have business income.
Three habits that save tax and trouble
- Hold for more than 24 months. The gap between your slab rate and 12.5% is large for most of our clients.
- Keep W-8BEN current. It expires every three years. Without it, you lose 5% of every dividend.
- Don’t skip Schedule FA. The penalty for non-disclosure under the Black Money Act is ₹10 lakh a year, even when no tax was evaded.
Rules as of October 2026, after Budget 2026. Tax law changes every year; confirm with your CA before filing.