ITR filing: capital gains holding period, tax rate, form to fill out and how to report US stock income

Income tax on foreign shares must be declared when filing returns in India. If you have received dividends from foreign stocks or recorded capital gains or losses, they must be reported accordingly to the tax authorities. Here is what Anshu Khanna, Partner-US Corridor, Nangia Andersen LLP said about the taxation of foreign income for Indian individual taxpayers.

Foreign Investment Disclosure
The gain or loss resulting from the sale of investments is reported in ITR 2 under the category “Capital gains or losses”. Income in the form of investment dividends should be reported in the “Other sources” category. Annex FA of the RIR-2 concerns the disclosure of foreign investments.

Which ITR form
A taxpayer who invests in US stocks or any other foreign asset cannot file ITR-1 (SAHAJ). Accordingly, he/she should file in ITR-2/ITR-3/ITR-5/ITR-6 and ITR-7 depending on their applicability.

How taxation of Indian shares differs from that of foreign shares
The TDS U/S 194 provision does not come into play in the case of foreign shares, while Indian companies are mandatorily required to deduct TDS @ 10% on the dividend they pay.

The taxpayer may not be able to benefit from Sections 111A/112A, which provide a preferential rate of capital gains tax on stocks or shares.

However, the tax implications on dividend income remain almost the same.

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Holding period for calculating capital gains
The holding period of foreign stocks is the same as that of unlisted Indian stocks. If the holding period of the shares is less than 24 months, they will be classified in the “short-term capital gain” category. While if this period is greater than 24 months, it is treated as a “long-term capital gain”.

Capital gains tax rate
Long-term capital gains from the sale of foreign shares (not listed on the Indian stock exchange) will be levied at a flat rate of 20% plus health and education tax (plus surcharge, if any) ). The short-term capital gain from the sale of foreign stocks will be added to total income and taxed at the individual’s slab rate.

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leave and postpone
The short-term loss (ST) can be offset by the balance of gains available in ST/LT gains. While long-term (LT) gains can only be offset with LT gains only.

Report: Short-term/long-term losses recognized due to the transfer of these shares can be carried forward (c/f) for 8 tax years.

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