The Tax on Your US Stocks and Foreign ETFs: What Indian Residents Owe and Often Forget

This matters most for two groups: professionals sitting on vested RSUs from a foreign employer, and HNIs diversifying abroad. For a resident Indian, worldwide income is taxable in India, so your entire US portfolio is in scope. Here is what you actually owe, and the parts people most often forget.

Capital gains: treated as unlisted

US stocks and US-listed ETFs are not on an Indian exchange and pay no securities transaction tax, so India treats them as unlisted foreign assets. Hold for more than 24 months and the gain is long-term, taxed at 12.5% after 24 months without indexation. Sell within 24 months and it is short-term, added to your income at your slab rate. Note the trap: the ₹1.25 lakh exemption and the 12-month rule that apply to Indian listed shares do not apply here. Foreign shares need two years, not one, to turn long-term.

RSUs add a second layer. When your foreign employer's shares vest, their value is taxed as salary in that year and shows up in your Form 16. When you later sell, you are taxed again on the gain over that vesting value, with the 24-month clock running from the vesting date, not the grant date. Many people report the salary part and forget the sale and the disclosure, which is exactly where notices come from.

A note on foreign ETFs. A US-listed ETF, say one tracking the S&P 500, is taxed exactly like a US share: unlisted, 24 months, 12.5%. But an Indian fund-of-funds that invests abroad can fall under different rules depending on when you bought it, so do not assume all foreign exposure is taxed the same. The wrapper changes the answer.

Dividends: taxed twice, credited once

When a US company pays you a dividend, the US withholds 25% under the India-US tax treaty, provided you have filed a W-8BEN with your broker. Without that form, they withhold 30%. The same dividend is then taxable in India at your slab rate as income from other sources. To avoid paying twice, you claim a foreign tax credit for the US tax by filing Form 67 before your return. Skip the form and you can lose the credit entirely, turning a treaty benefit into real double taxation.

Getting money there: LRS and TCS

You invest abroad under the Liberalised Remittance Scheme, which lets a resident send up to USD 250,000 a year. On investment remittances above ₹10 lakh in a year, the bank collects 20% TCS. It is a prepaid tax you recover when you file, not a cost, but it ties up cash in the meantime. This is the same machinery behind any decision about investing abroad to diversify away from the rupee.

The part people forget: Schedule FA

This is where the real risk sits. Every resident who holds foreign assets must disclose them each year in Schedule FA of the return, on a calendar-year basis, even if they earned nothing and sold nothing. It is a disclosure, not a tax. But non-disclosure is treated seriously: under the Black Money Act, failing to report foreign holdings can attract a flat ₹10 lakh penalty, with a carve-out only for small holdings under ₹20 lakh. Many salaried people with RSUs discover this the hard way, years later.

One quirk trips people up: Schedule FA runs on the calendar year, January to December, not the April-to-March financial year, and you report the holding even for shares you sold mid-year. Values go in rupees at the prescribed exchange rate. It is fiddly, but it is the single most important box to get right, because the penalty for leaving it blank is out of all proportion to the tax.

The estate-tax trap most people miss

One quiet risk catches HNIs. US-situated assets, which include US stocks and US-listed ETFs, can attract US estate tax of up to 40% on death for a non-resident, on value above roughly $60,000. There is no India-US estate-tax treaty to soften it. A common fix is to hold global equity through Ireland-domiciled funds, or through GIFT City, which sidesteps US-situs exposure and often lowers dividend withholding too. It is the kind of detail that does not matter at all until it matters enormously.

Where this leaves you

The tax on US stocks is manageable. The compliance is what bites. File the W-8BEN, claim your foreign tax credit, and above all do not skip Schedule FA. For larger portfolios, the structure you buy through can matter as much as what you buy.

Frequently asked questions

How are US stocks taxed for Indian residents?

As unlisted foreign assets. Long-term gains, on holdings over 24 months, are taxed at 12.5% without indexation. Short-term gains, within 24 months, are added to income at your slab rate. The ₹1.25 lakh equity exemption does not apply.

Are foreign ETFs taxed the same as US stocks?

US-listed ETFs are treated the same way, as unlisted foreign assets with the 24-month long-term threshold at 12.5%. Indian mutual funds and fund-of-funds that invest abroad can be taxed differently, so check the specific structure.

Do I pay US tax on my US stock gains?

No. Non-resident aliens are not taxed by the US on capital gains from US shares. The gain is taxable only in India. US dividends, however, face a 25% US withholding tax, which you can credit in India.

What is Schedule FA and who must file it?

Schedule FA is the foreign-assets disclosure in the ITR. Every resident and ordinarily resident holding foreign shares, ETFs, or a brokerage account must report them each year, even with no income or sale. Non-disclosure can attract heavy penalties.

What is the US estate-tax risk on US stocks?

US-situs assets over about $60,000 can face US estate tax up to 40% on a non-resident's death, with no India-US treaty relief. Holding via Ireland-domiciled funds or GIFT City structures is a common way to avoid it. This article is for information only and is not investment or tax advice. Rules referred to here apply to FY 2025-26 and can change. Please speak to a qualified adviser before acting. Sources for figures: Income Tax Department guidance, the Finance (No. 2) Act 2024, the India-US DTAA, and the Black Money Act 2015, as applicable for FY 2025-26. Verified July 2026.

If you hold foreign shares or vested RSUs and are not certain your disclosures are clean, SELEQT can review the full picture before the next filing, rather than after a notice arrives.