InvestorQ : I am investing in some US stocks and ETFs through the liberalized remittance system or LRS offered by RBI? What will be my tax implications on such income?
diksha shah made post

I am investing in some US stocks and ETFs through the liberalized remittance system or LRS offered by RBI? What will be my tax implications on such income?

Answer
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rhea Babu answered.
2 weeks ago


In the last few years, many Indian investors have been looking to diversify their India investment risk by putting money in US stocks and indices. After all, Dow and NASDAQ have been two of the best performing markets in the world in terms of equity performance.

Today, Indians investing through the LRS scheme have a limit of $250,000 per year although the recent decision to levy 5% tax at source on such investments can be quite an irritant. Such investments can be made as direct equities abroad or even into MFs and ETFs.

That brings us to the next question you raised about tax status of such global investments. Most investors investing overseas are fairly confused by the tax implications of such foreign investments. Here are a few basic things to remember on tax implications.

Please note that the US exempts capital gains of foreign investors from tax in the US. However, any income earned by way of dividends or capital gains will be taxable in the Indian context. Tax liability would predicate on nature of income and on residential status.

For example, dividend income attracts 25% flat tax and such tax will be withheld and only the net amount will be paid. As an investor, when you file the returns in India, you can claim credit for the tax withheld at source at the time of dividend payment.

The capital gains will be classified as LTCG if the asset is held for more than 24 months and taxed at 20% after considering the benefits of indexation. STCG will be added to normal income and taxed appropriately at the relevant peak rates applicable.

It also predicates on residential status. For Resident Indians, entire income is taxable in India. For RNOR and for NRIs, only income arising from Indian assets like Infy ADRs or HDFC Bank ADRs will be taxed in India. However, there will be tax in their country of residence.