For Indian tax residents with global portfolios, capital gains tax is the primary tax liability.
A thorough understanding of how capital gains tax works, the applicable rates, calculation of exact tax liability, loss offsetting rules, and what's not covered under double taxation rules can help you stay compliant, avoid unwanted income tax notices, and optimize returns.
Table of contents
- What is capital gains?
- How is capital gain calculated?
- How can I calculate the purchase and selling price for capital gains tax calculation?
- How is capital gain calculated for inherited foreign assets?
- Capital gains tax rates for foreign stocks
- Capital gains tax rates for foreign etfs
- Are foreign capital gains subject to surcharge and cess?
- Are capital gains double taxed?
- How to offset capital losses in your portfolio
- Common mistakes made by investors
- Conclusion
- FAQs
What is capital gains?
Capital gain is the profit you make when selling an asset. It is essentially the difference between your buying price and selling price.
If you make a loss on the sale of an asset, it is known as a capital loss.
When we refer to capital gains, we are referring to ’realized’ profit (or loss). Therefore, for all taxation purposes, a capital gain happens only when you have sold an asset and booked a profit. Mere appreciation in value is not considered a capital gain.
Example
Suppose you buy 100 shares of Apple at $200 each.
- Scenario A: The price rises to $250, but you continue to hold the shares. Since you haven't sold, this is an "unrealized gain." You do not pay any tax on this $50 increase per share.
- Scenario B: You sell the shares at $240. You have now "realized" a profit of $40 per share. This $40 is your capital gain per share, and this is what will be taxed.
How is capital gain calculated?
Capital gain (or loss) is simply the difference between the selling price and the buying price of the asset.
Capital Gain = Selling Price – Buying Price
Example
Suppose you hold a portfolio with $200,000 in US stocks and $100,000 in UCITS ETFs. You decide to sell $10,000 worth of stocks and $8,000 worth of UCITS ETFs for reinvestment:
Purchase Price (A) | Selling Price (B) | Capital Gain (B-A) | |
US Stocks | $8,000 | $10,000 | $2,000 |
UCITS ETFs | $6,000 | $8,000 | $2,000 |
Total | $14,000 | $18,000 | $4,000 |
You do not pay tax on the total $18,000 you withdrew. You only pay capital gains tax on the actual profit of $4000 realized on these specific units (i.e., the Selling Price of these units minus their original Purchase Price).
For international investments, this calculation gets more complicated. You cannot just calculate your profit in USD and convert the final figure to INR. You need to account for currency exchange rates and the specific Indian tax laws that dictate exactly which exchange rates must be applied to your buy and sell transactions.
How can I calculate the purchase and selling price for capital gains tax calculation?
When filing taxes in India, you must convert every buy/sell transaction into INR.
The standard rule is to use the SBI TT Buying Rate on the last day of the month immediately preceding the relevant transaction.
Cost of Acquisition: Purchase price in USD × SBI TT Buying Rate on the last day of the month immediately preceding the month in which the capital asset was acquired.
Sale Price: Sale price in USD × SBI TT Buying Rate on the last day of the month immediately preceding the month in which the capital asset is transferred (e.g., use the rate from 31 Aug if the asset is sold on 10 Sep).
Your broker provides the basic information regarding which units have been sold, their acquisition price and date, and their selling price and date. Most brokers follow FIFO (First-In, First-Out) here, meaning the units you acquired first are sold first.
Note: Paasa automates this entire calculation for you, fetching the correct historic exchange rates to ensure your tax report is accurate.
A common mistake here is assuming zero capital gains because you made no profit (or a loss) in USD.
Example: You bought a stock at $1000 (₹80,000) when the exchange rate was 80 INR/USD and sold it at $950 (₹85,500) when the exchange rate was 90 INR/USD. You made a loss in dollars, but the Indian government sees a ₹5500 profit and taxes you on it.
Capital gains tax rate depends on the length of your holding period. Based on this duration, gains are classified as either Long-Term (LTCG) or Short-Term (STCG), which determines the applicable tax rate.
How is capital gain calculated for inherited foreign assets?
In India, capital gains on inherited foreign assets like global stocks and ETFs are calculated based on the sale price minus the original purchase price paid by the deceased. The cost of acquisition is not "stepped up" or reset to the market value at the time of inheritance; you effectively inherit the original cost base of the previous owner.
However, the US charges an Estate Tax (up to 40%) to non-residents on US-situated assets exceeding $60,000. This estate tax payment does not reduce your capital gains tax liability in India.
This creates a scenario where you are taxed on the pre-inheritance tax value. You are liable for capital gains on the full asset value (minus the deceased's original buying price), even though the US government has already deducted a significant portion as estate tax before you received the assets.
Example:
You inherit assets worth $500k. The IRS deducts $135k in estate taxes, leaving you with $360k. If you sell immediately, India calculates your taxable profit based on the full $500k value minus the deceased's original purchase price (Cost of Acquisition).
| Amount | Note |
Gross Value at Inheritance (A) | $500,000 | The value used for Indian Tax calculations. |
US Estate Tax (IRS) (B) | $135,000 | Deducted before you receive the funds. |
Net Value You Receive (A-B) | $365,000 | The actual cash landing in your account. |
Deceased's Purchase Price (C) | $200,000 | The original "Cost of Acquisition". |
Taxable Capital Gain in India (A-C) | $300,000 | Indian considers the gross value of inheritance, deducts the purchase price, and taxes the balance. |
As shown above, you are liable to pay tax on a $300,000 profit (derived from the $500k gross value), even though you only effectively received $360k.
Common questions people have about estate tax and inheritance
Which global investments are subject to inheritance tax?
Among the major markets, only the U.S. charges an estate tax. Your U.S.-situated assets are subject to an estate tax of up to 40%, with an exemption for the first $60,000 in total assets.
How is inheritance tax deducted from my account if I die?
Your heirs must pay the estate tax upfront before they can access your assets in the United States.
Can I claim a tax credit in India for the Estate Tax paid in the US?
No. The DTAA between India and the US does not cover Estate Tax.
Are there legal ways to avoid or reduce the US Estate Tax?
Yes. The most effective strategy to stay invested in the US market while avoiding this tax is to invest via UCITS ETFs. Since these funds are legally domiciled outside the US, they are not considered "US-situated assets" and do not trigger US estate tax.
Capital gains tax rates for foreign stocks
The capital gains tax rate on foreign stocks is decided by the holding period.
Capital gains made from stocks foreign held for less than 24 months are classified as Short Term Capital Gains (STCG). Short term capital gains are treated as income and therefore taxed at your income tax slab.
Capital gains made from foreign stocks held for more than 24 months are classified as Long Term Capital Gains (LTCG). Long term capital gains are taxed at a flat rate of 12.5%.
Holding Period | Asset Classification | Tax Rate |
≤ 24 Months | Short-Term (STCG) | Slab Rate (Added to your income) |
> 24 Months | Long-Term (LTCG) | 12.5% (Flat rate without indexation) |
Capital gains tax rates for foreign ETFs
International mutual funds are considered "non-equity" funds because their equity exposure is in foreign stocks, not Indian equities. Since international funds focus on foreign equities, they fall under the debt fund taxation category.
The capital gains tax rate on foreign ETFs is also decided by the holding period. In certain cases you need to take the purchase date and selling date into consideration.
For foreign ETFs bought before 1st April 2023:
- All redemption between April 1, 2024 and July 22, 2024 will be taxed at 20% with indexation benefits if the holding period is over 36 months and at income tax slab rates if holding period is less than 24 months.
- All redemptions on or after July 23, 2024 are subject to the new long term capital gains tax of 12.5%.
For foreign etfs bought after April 1, 2023:
- Any capital gains made during the financial year 2025 (April 1, 2024 to March 31, 2025) falls under Short Term Capital Gains, and will be taxed at income tax slab rates
- New rules will be applicable from April 1, 2025 (same rates as foreign stocks). These new rates are as follow:
Holding Period | Asset Classification | Tax Rate |
≤ 24 Months | Short-Term (STCG) | Slab Rate (Added to your income) |
> 24 Months | Long-Term (LTCG) | 12.5% (Flat rate without indexation) |
We know that capital gain tax rates for foreign ETFs can be complicated to understand right now because of the multiple rates that are applicable depending on when you bought and sold the ETFs.
However, most investors do not need to remember or refer to all these rules.
Here’s all you need to remember regarding taxation on foreign ETFs:
- The different rates in the table are applicable to you only for ETF units bought before April 1, 2023 and sold before July 23, 2024.
- Everything else is now taxed under the new capital gains tax rates and holding periods.
- The new capital gains tax rates and are the same for foreign stocks and ETFs.
Are foreign capital gains subject to surcharge and cess?
Yes, foreign capital gains are subject to surcharge and cess on top of the base tax rate (whether that is 12.5 for LTCG or your income tax slab for STCG).
Surcharge
Surcharge is levied on the amount of income-tax at following rates if total income of an assessee exceeds specified limits:
Range of Income | Surcharge |
Rs. 50 Lakhs to Rs. 1 Crore | 10% |
Rs. 1 Crore to Rs. 2 Crores | 15% |
Rs. 2 Crores to Rs. 5 Crores | 25% |
Exceeding Rs. 5 Crores | 25% |
The surcharge is applied on your total income tax liability.
For example, if your tax liability on sale of ETFs is ₹10 lakhs and the surcharge applicable to you is 25%, your tax liability after surcharge is ₹12.5 lakhs (₹10 lakhs + 25% of ₹10 lakhs).
Cess
A health and education cess is levied at the rate of 4% on the amount of income-tax plus surcharge.
For example, if your tax liability on sale of ETFs after surcharge is ₹12.5 lakhs, the 4% cess is applied on top of this ₹12.5 lakhs. This takes your total income tax liability to ₹13 lakhs (₹12.5 lakhs + 4% of ₹12.5 lakhs).
This is what your final tax calculation looks like:
| Amount |
Tax Liability on Sale of ETFs (A) | ₹10,00,000 |
Surcharge (B) (25% of A) | ₹2,50,000 |
Tax Liability after Surcharge (A+B) (C) | ₹12,50,000 |
Cess (4% of C) (D) | ₹50,000 |
Total Tax Liability (C+D) | ₹13,00,000 |
The surcharge is applied on the base tax liability, and the cess is applied on the tax liability after adding surcharge.
Are capital gains double taxed?
No, capital gains are not double taxed for Indian tax residents.
Indians are not charged capital gains in taxes in major markets like the U.S., UK, Switzerland, and Singapore.Therefore you pay taxes only in India.
Even if you have been charged a capital gains tax abroad, India’s DTAAs and Income Tax Section 90 and 91 allows you to claim back any tax paid abroad paid as FTC. Please consult your CA or tax advisor for more details.
How to offset capital losses in your portfolio
India allows you to set off losses between foreign assets (like US stocks or UCITS ETFs) and Indian assets (like stocks or mutual funds), provided they fall under the same "Head of Income" (Capital Gains).
Here is how you can offset your global loss with Indian gains:
| Can it be adjusted against Indian Short-Term Gains? | Can it be adjusted against Indian Long-Term Gains? |
Global Short-Term Loss (STCL) | ✅ YES | ✅ YES |
Global Long-Term Loss (LTCL) | ❌ NO | ✅ YES |
Here is how you can offset your Indian loss with global gains:
| Can it be adjusted against Global Short-Term Gains? | Can it be adjusted against Global Long-Term Gains? |
Indian Short-Term Loss (STCL) | ✅ YES | ✅ YES |
Indian Long-Term Loss (LTCL) | ❌ NO | ✅ YES |
Important Notes:
- Same Head Only: You cannot set off these capital losses against your Salary or Business Income.
- Carry Forward: If your total losses exceed your total gains for the year, you can carry the remaining loss forward for 8 years to offset future gains.
- Mandatory Reporting: To claim this set-off and carry forward, you must file your Income Tax Return (ITR-2/3) on or before the due date (usually July 31). If you file a "Belated Return," you lose the right to carry forward losses.
Common mistakes made by investors
Choosing the wrong broker
Retail-focused brokers offer services that are not built for HNIs. When investing yourself, your goal should be to minimize time spent on routine repetitive tasks like compliance, while ensuring that your paperwork is bulletproof. Opting for the wrong platform can lead to compliance headaches later on.
Not accounting for taxes not covered by DTAAs
Investors often assume that Double Taxation Avoidance Agreements (DTAA) protect them from all forms of double taxation. However, the US-India DTAA does not cover the U.S. Estate Tax.
For non-US residents (like Indian investors), this inheritance tax applies if your US-situs assets (like US stocks or US-domiciled ETFs) exceed $60,000.
Use our US Estate Tax Calculator to find the exact tax you will have to pay.
Lack of proper capital loss offsetting
Many investors overlook that you can offset losses across borders. You are allowed to set off losses from your overseas investments against gains from your Indian investments (and vice versa), provided they fall under the same head of income. The only restriction is that global long term loss cannot be adjusted against Indian short term gains.
You can carry forward losses for up to 8 years.
Reporting inaccuracies in Schedule FA
Even small reporting inaccuracies in Schedule FA can trigger scrutiny and Income Tax notices.
Ensure that you are correctly reporting all your foreign assets in Schedule FA. Also note that the Indian financial year (FY) runs from April to March, but Schedule FA requires you to report holdings based on the calendar year ending within that financial year.
Skipping Form 67
You must file Form 67 before the due date of filing your Income Tax Return. Failing to file this form can lead to the tax department denying your foreign tax credit claim, forcing you to pay tax on the same income twice.
Not calculating rupee adjusted capital gains
Many investors make the mistake of looking only at the dollar value of their portfolio to determine tax liability. In reality, due to currency fluctuations, you might suffer a loss in USD but still generate a taxable profit in INR if the Rupee has depreciated significantly against the Dollar during your holding period.
Example: Imagine you buy a stock for $2,000 when the exchange rate is ₹82 (Total Cost: ₹1,64,000). Later, you sell the stock for $1,900 (a $100 loss) when the rate has shifted to ₹88.
- Sale Value in INR: $1,900 × ₹88 = ₹1,67,200
- Result: While you lost $100, the Indian government sees a profit of ₹3,200 (₹1,67,200 - ₹1,64,000), and you will be taxed on this amount.
Conclusion
Navigating capital gains tax on foreign assets requires a meticulous approach. From distinguishing between ETF holding periods to accounting for currency fluctuations, precise calculation is critical to avoid unexpected tax bills. Staying diligent with these specific rules ensures your global portfolio remains tax-efficient and compliant.
About Paasa
Paasa is the platform used by global Indian Investors, HNIs, family offices to diversify their wealth across global markets like US, UK, China, Singapore, Switzerland, and beyond.
Paasa offers a comprehensive advisory layer that keeps your portfolio compliant and makes tax filing hassle free with:
- Dedicated relationship manager
- Ongoing remittance, FEMA and tax advisory
- Ongoing tax loss harvesting and rebalancing
- End of year tax documents
What type of documents does Paasa provide to file taxes?
At the end of the financial year, Paasa provides a ready-to-file tax package containing:
- Capital Gains Report: A clear breakdown of Short-Term vs. Long-Term capital gains, calculated specifically according to the 24-month holding rule for unlisted shares.
- Dividend & Interest Reports: Consolidated statements showing exactly how much income you earned and the tax withheld abroad, making it easy to fill Schedule FSI.
- Schedule FA Report: This is typically the hardest part of the ITR. We provide a report with the Peak Value and Closing Value of your assets in INR, calculated using the mandatory SBI TT Buying Rates, so you can simply copy-paste the numbers into your tax return.
We believe that global taxation should not come at the cost of your peace of mind. If you are investing in global equities and have doubts around taxation, FEMA, LRS, or compliance, feel free to reach out to our team.
Disclaimer
This article is intended solely for information and does not constitute investment, tax, or legal advice. The material is based on public sources and our interpretation of prevailing regulations, which are subject to change. Global investments carry certain risks, including currency risk, political risk, and market volatility. Past performance does not predict future outcomes. Please seek advice from qualified financial, tax, and legal professionals before acting.
