If you’re an Indian Investor with a global portfolio, clarity around tax regulations is a must.
Understanding taxation of capital gains, dividend income, TCS, joint accounts, and knowing how to file your tax helps you optimize your net returns.
More importantly, it also keeps you compliant and ensures that the tax man does not come knocking for you.
Table of Contents
- Capital gains
- Dividends income
- TCS
- Joint accounts
- Documents required for tax-filing
- Key mistakes investors make
- How Paasa helps in taxation
Capital gains
Capital gains refer to the profit you make after selling an asset.
For example: If you bought a stock at $10,000 and sold it at $15,000, your capital gain is $5000.
How does taxation on capital gains or capital loss work?
As an Indian tax resident, any profit you make from selling foreign assets (stocks, ETFs, or funds) is fully taxable in India.
It does not matter if you bring the money back to your Indian bank account or keep it in your global brokerage account. If you booked a profit, the tax event has occurred.
Holding Periods & Tax Rates
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) |
How to offset global losses against Indian profits
The Income Tax Department allows you to set off losses from foreign assets (like US stocks or any global ETFs) against profits from Indian assets (like stocks or mutual funds), provided they fall under the same "Head of Income" (Capital 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 |
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 questions people have around capital gains
Will I get charged capital gains on unrealized gains?
No. India does not tax "paper profits." Capital gains tax is only triggered when you actually sell the asset and realize the profit. Mere appreciation in the value of your portfolio is not taxable.
Will it be double taxed?
No. Countries like the U.S, UK, Ireland, Switzerland, and Singapore do not tax capital gains for non-residents. Therefore, you pay tax only in India.
Is there a ₹1.25 Lakh LTCG exemption similar to Indian stocks?
No. The ₹1.25 Lakh LTCG exemption applies only to Indian listed equities.
Is indexation allowed for LTCG?
No. You pay a flat 12.5% tax on the absolute profit earned, regardless of inflation.
Which exchange rate should I use for calculating tax on capital gains?
You must use the SBI TT Buying Rate as of the last day of the month preceding the month in which the in which the capital asset is transferred.
Dividends
Dividends are the share of profits that a company distributes to its shareholders.
For example: If you own shares of Microsoft and they declare a dividend, that money is deposited into your brokerage account.
How does tax on dividends work?
In India, foreign dividends are treated as "Income from Other Sources" and are taxed at your applicable income tax slab rate.
However, unlike Capital Gains, the country where the company is based (Source Country) usually deducts a withholding tax before the money reaches you. This is called “Dividend Withholding Tax”.
Example
If a US company declares a $1000 dividend, they will deduct the tax before transferring the balance to your account. As the US charges a 25% dividend withholding tax for Indians, the actual cash that hits your account will be $750.
Will my dividend gains be double taxed?
No. While the Source Country might deduct tax at the source, you do not end up paying tax twice on the same income in practice.
The tax deducted abroad can be claimed back as a Foreign Tax Credit (FTC) in India, which is adjusted against your Indian tax liability.
Example
Suppose you receive $20,000 in dividends from your U.S. equities, and you fall in the 30% income tax bracket in India. The US will deduct 25% as dividend withholding tax (which can be claimed back as FTC in India), and your final tax liability will look like this:
The U.S. deducts 30% dividend withholding tax by default. However, because India and the U.S. have a Double Taxation Avoidance Agreement (DTAA), you are eligible for a reduced rate of 25%. Paasa handles the paperwork (Form W-8BEN) for you and ensures that you get the preferential rate.
Amount | Explanation | |
Gross Dividend (A) | $20,000 | This is your total income reported in India. |
Foreign Withholding (25%) (B) | $5,000 | Deducted automatically by the foreign broker. |
Net Cash Received (A-B) | $15,000 | The actual amount that hits your account. |
Indian Tax Liability (30%) (C) | $6,000 | Calculated on the Gross Dividend ($20,000). |
Foreign Tax Credit (FTC) (D) | $5,000 | You use the tax already paid abroad to pay your Indian bill. |
Final Tax Payable in India (C-D) | $1,000 | You only pay the remaining difference to the Indian government. |
Your Indian tax liability on the dividend income of $20,000 will be $6,000 (assuming you fall into the 30% tax bracket).
However, the US has already deducted a 25% tax amounting to $5000 before paying you. This $5000 will get adjusted against your Indian tax liability of $6000, and you will end up paying only $1000 as tax in India.
Dividend withholding tax rate for different countries
Country | Dividend Tax (at source, under DTAA) |
U.S. | 25% |
Singapore | 0% |
UK | 0% |
Switzerland | 10% |
Ireland | 10%, or reduced to 0% at source with a valid V2 non-resident declaration. |
Japan | 10% |
Poland | 10% |
China | 10% |
Germany | 10% |
DTAA benefits are available only if you file the correct paperwork with the source country. To learn more about how to claim DTAA benefits, check out our guides on:
- US-India DTAA
- Singapore-India DTAA
- UK-India DTAA
- Switzerland-India DTAA
- India-Ireland DTAA
- Japan-India DTAA
- Poland-India DTAA
- China-India DTAA
- Germany-India DTAA
Common questions people have about dividend withholding tax
Will I get a refund if my tax slab is lower than the Foreign Withholding Tax?
No. India limits the Foreign Tax Credit to the lower of:
- The actual tax paid abroad.
- The tax payable in India on that specific income.
If the foreign country deducts 25% but your Indian slab is only 10%, the extra 15% is not refunded.
Which exchange rate should I use for calculating tax on dividends?
You must use the SBI TT Buying Rate as of the last day of the month preceding the month in which the dividend was paid.
What is the dividend withholding tax for US investment? Is it 25% or 30%?
The U.S. charges a 30% dividend withholding. But you can reduce it to 25% under the India-US DTAA by submitting Form W-8BEN with your broker or the IRS.
Do all countries have the same dividend withholding tax?
No, the dividend withholding tax varies according to the source country.
TCS (Tax Collected at Source)
TCS is an advance tax collected by the Indian government when you remit (send) money outside India. It is not an additional fee; it is a prepayment of your annual income tax.
How is TCS calculated?
TCS is calculated as an additional surcharge (which is essentially an advance tax payment) over and above the transaction amount.
- There is a TCS exemption for foreign remittances up to ₹10 lakh per PAN per financial year (revised from ₹7 lakh with effect from 1st April 2025).
- TCS is charged only when your foreign remittances in a financial year exceed the ₹10 lakh mark.
- The rate of TCS depends upon the purpose of remittance.
- Foreign remittances for investment purposes (Purpose Code S0001 for investments in equity shares, Purpose Code S0002 for investments in debt instruments) are subject to 20% TCS.
Example
If you are remitting ₹25 lakh for foreign investment, this is what your TCS deduction will look like:
Amount | Explanation | |
Total Remittance (A) | ₹25,00,000 | Total foreign remittance for investment. |
Exempt Limit (B) | ₹10,00,000 | The first ₹10 Lakhs in a financial year is tax-free. |
Taxable Amount (A-B) | ₹15,00,000 | TCS applies only to the amount exceeding the limit. |
TCS Rate | 20% | The applicable tax rate on the taxable portion. |
TCS Charge (C) | ₹3,00,000 | The advance tax collected by the bank (20% of ₹10L). |
Total Outflow (A+C) | ₹28,00,000 | The total money deducted from your bank account. |
If you make a foreign remittance of ₹25 lakh for investment purposes, TCS is charged only on the balance ₹15 lakhs after deducting the exempt amount of ₹10 lakhs.
⚠️ Note: This calculation assumes you have not made any other foreign remittances in the current financial year. If you have other foreign remittances, you need to consult your CA or tax advisor.
Category-wise TCS rates (w.e.f. April 1, 2025):
Purpose of Remittance | TCS |
Education (via loan from a specified institution) | Nil |
Education (other than above) or Medical treatment | 5% |
Any other purpose (investments, travel, property, gifts, etc.) | 20% |
Note: TCS is only charged above the ₹10 lakh exemption limit. The ₹10 lakh limit is a single, aggregate limit across all categories of foreign remittances in a financial year, not a separate limit for each category.
Will I get a refund if my TCS deduction is higher than my total tax liability?
Yes. If your TCS deduction is higher than your total tax liability, you will get a refund after filing your taxes. The tax you have already paid as TCS will reflect in Form 26AS, and your bank will also provide Form 27D as a proof of deduction.
What is the TCS exemption limit for foreign remittance?
The TCS exemption limit for foreign remittance has been updated to ₹10 lakhs with effect from April 1, 2025.
Joint accounts
Joint accounts with overseas brokers are subject to the same taxation rules in India, but the income and asset reporting process differs.
Who is taxed for gains made from joint accounts?
The beneficial owner is taxed for the gains made from the joint account. Essentially, tax liability follows beneficial ownership: the person who provided funds and beneficially owns the investments pays the tax on gains. In case both account holders receive the funds, they need to pay proportional taxes.
What are the reporting requirements for foreign accounts?
For foreign joint accounts, both account holders should disclose foreign assets in schedule FA for transparency purposes. However, only the beneficial owner needs to pay the tax.
How are withholding tax deducted for foreign accounts?
In case of joint accounts, brokerages typically issue a single Form 1042-S (this form provides information on withheld taxes) to the primary owner. However, you can request the brokerage to issue separate Form 1042-S to both owners.
Can we open a global brokerage joint account with Paasa?
Yes. Paasa lets you open global brokerage joint accounts.
Documents required for tax-filing
Holding foreign assets triggers mandatory disclosure requirements in your Income Tax Return (ITR). The Black Money Act focuses on asset transparency, meaning the government wants to know what you own, regardless of whether you made a profit.
The Mandatory Forms
Form / Schedule | Purpose | Deadline |
Form 67 | Mandatory to claim Foreign Tax Credit (FTC). Must be filed online. | Before ITR Deadline |
Schedule FA | To report Foreign Assets. You must report any asset held between Jan 1 and Dec 31. | With ITR |
Schedule FSI | To report Foreign Source Income and tax paid abroad. | With ITR |
Schedule TR | To calculate Tax Relief under the DTAA. | With ITR |
Note: Unlike your main Income Tax Return which follows the Indian Financial Year (April-March), Schedule FA specifically asks for details based on the Calendar Year (January-December).
Common questions people have about tax filing
Do I need to declare my holdings even if I don't sell?
Yes. While you do not pay tax until you sell (for capital gains), you must report the existence of the asset to the Income Tax Department every single year.
Do I need to file "Schedule FA" even if I have zero balance or made a loss?
Yes. If you held a foreign stock for even a single day during the calendar year, you must report it in Schedule FA, even if you sold it later.
What happens if I forgot to declare in the past?
You must file a Revised Return immediately. This window is strictly limited (typically until December 31st of the Assessment Year). Failure to disclose foreign assets can attract a penalty of ₹10 Lakhs per year and up to 7 years of imprisonment under the Black Money Act.
Is Form 67 mandatory if I don't want to claim Foreign Tax Credit?
No. Form 67 is a procedural requirement specifically for claiming tax credit under Section 90. If you are willing to forego the credit and pay the full tax in India, filing Form 67 is not mandatory.
Do I need to report foreign assets in Schedule AL also?
Yes, if your total income for the year exceeds ₹50 Lakhs. In this case, you are required to disclose foreign assets in the "Assets and Liabilities" (Schedule AL) section, in addition to Schedule FA.
Key mistakes investors make
Not reporting all foreign assets
When you are using multiple brokers and investment platforms for overseas investment, errors can happen while reporting foreign assets. However, these small errors can trigger scrutiny and penalties under the Black Money Act.
Moving all your holding to a single platform that provides compliance support like Paasa can help avoid inaccuracies.
Not taking advantage of DTAAs
DTAAs provide relief from double taxation and also enforce lower withholding tax rates. However, these benefits are not automatically applied. You need to file the correct paperwork in the source country.
For example, to activate the US treaty rate, you need to submit Form W-8BEN. Similarly, in Singapore you need to submit a treaty declaration or tax residency certificate.
Not offsetting capital losses
India allows you to offset losses from foreign assets (like US stocks or any global ETFs) against profits from Indian assets (like stocks or mutual funds), and vice-versa.
The only limitation is that you cannot offset global long term losses against Indian short term gains.
How Paasa helps in Taxation
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.
