Investors have made an astounding 27.39% return on their investments in the US market (NASDAQ) vs. 13.63% return on their investments in the Indian market (NIFTY) over the last three years.
No doubt, investing in the US market help maximize returns. Geographic diversification and investing in developed economies can do wonders for your portfolio. But a common question that clouds investors’ decision of investing in a foreign land concerns taxation. Will charges and double taxes eat into your pie? Will the taxation be too complicated for beginners to understand?
In the US market, the taxation on investment differs from that in India. Of course! However, the Indian residents get an advantage at a few frontiers while filing their taxes. Let’s understand that and the tax implications as we classify them based on the types of gains.
The main objective of investing is to earn profit by selling at a higher price than the purchase price. The profit on selling the investment in the US market will be considered a capital gain (or benefit) with no tax implication on it in the US.
As an Indian resident, you will have to follow India’s tax laws. If the investment is held for 24 months, then the Short Term Capital Gain (STCG) will apply. Otherwise, Long Term Capital Gain (LTCG) will be applied.
For the STCG, the profits on the sale of investment would become a part of the current income, and the taxation would be as per the slab rates applied to the investors. For the LTCG, when a stock is held beyond 24 months, the gains will be taxed at 20%, along with additional surcharges and fees. Dividends / Interest
The investors receive profits from the company in the form of dividends. These dividends are a part of income for the investors and hence are taxable. As per the US market, the taxability on investment is at a rate of upto 25%.
The remaining part of the dividend received as an income to the investor would be charged at normal slab rates as applicable to the investors. The taxes paid in the US could be offset against the Indian tax liability as per the Double Tax Avoidance Agreement (DTAA).
As an investor, you should make an informed decision before diving into global investing. Avoid mistakes that HNIs commonly make.
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Disclaimer: The taxation facts stated in this article are based on our understanding of the DTAA between the US & India, and the Indian Income Tax Laws; however, please note that we are not experts on taxation and you should consult your tax advisor for specific situations that are applicable to you.