US Stock Investors Beware, Investing in US stocks through Groww, INDmoney, or Vested? Discover the hidden tax traps on dividends, capital gains, DTAA rules, and how to legally avoid double taxation. A must-read 2025 guide for Indian and NRI investors.
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The New Era of Global Investing
Over the past few years, Indian investors have enthusiastically joined the global investing trend, buying shares of Apple, Amazon, Tesla, and Microsoft through platforms like Groww, INDmoney, and Vested.
While owning global companies feels exciting, tax experts and veteran investors are warning of a hidden danger — a complex web of cross-border tax rules that can quietly reduce your profits.
“Many Indian investors don’t realize that their US stock earnings can be taxed twice — once by the US, and again by India,” warns a senior wealth advisor.
The Hidden Trap: Double Taxation on US Dividends
When you earn dividends from US-listed companies, the US government automatically deducts 25–30% tax before the money reaches your account.
For example:
If you receive $1,000 in dividends from Apple or Microsoft, the IRS withholds $250 (25%).
You receive $750 in your account.
Under Indian law, you must declare this income again while filing your Income Tax Return (ITR) and pay tax according to your income slab.
If you fall under the 30% slab, you may lose another 5–10% — effectively paying tax twice on the same income.
That’s why this is called the Double Taxation Trap.
DTAA: The Relief Mechanism (That Many Investors Miss)
India and the US have a Double Taxation Avoidance Agreement (DTAA) that allows you to claim credit for tax already paid in the US.
Example:
If your Indian tax on a $1,000 dividend is ₹8,000 and you’ve already paid ₹6,000 in the US, you only owe ₹2,000 in India.
The Catch:
To claim this credit, you must file Form 67 (Foreign Tax Credit claim) before filing your ITR.
If you forget or delay filing it, your credit claim is invalid, and you end up being taxed twice.
Many investors lose money simply because they skip this small but crucial step.
Capital Gains Tax: The Second Layer of Taxation
Capital gains on foreign stocks depend on your holding period:
- Held for less than 24 months → Short-Term Capital Gains (STCG) → taxed as per your income slab (up to 30%)
- Held for 24 months or more → Long-Term Capital Gains (LTCG) → taxed at 20% with indexation
Unlike Indian equities (where LTCG is taxed at 10%), foreign stocks attract 20%, and your gain is calculated in INR, not USD.
This means currency exchange fluctuations can impact your profit or loss significantly, adding another layer to your tax burden.
LRS and FEMA Compliance: The Silent Risk Zone
Every rupee invested abroad falls under the Liberalised Remittance Scheme (LRS).
- Annual limit: $250,000 per person
- Tax Collected at Source (TCS): 5% on remittances above ₹7 lakh (claimable while filing ITR)
If you invest through fintech apps and fail to report these transactions properly, you could unknowingly violate FEMA regulations, which carry penalties up to three times the transaction amount.
Veteran investor Ramesh Damani recently stated:
“Young investors are buying US stocks without understanding FEMA and taxation. You can’t treat global investing like domestic trading — compliance is everything.”
US Stock Investors Beware: Mistakes of Indian Investors
- Not declaring foreign dividend income in the ITR.
- Forgetting to file Form 67 before the due date.
- Using unapproved or unregistered brokers.
- Ignoring foreign assets in Schedule FA.
- Assuming that mutual funds holding US stocks are taxed like Indian equity funds.
Each of these mistakes can lead to tax notices or double taxation if ignored.
Expert Advice: Keep Records and Choose the Right Platform
Always use SEBI-registered or RBI-approved platforms for investing in foreign markets.
Maintain proper documentation such as:
- Foreign contract notes and statements
- Form 1042-S (US tax withholding certificates)
- Bank remittance slips under LRS
These records are essential to prove your tax credit claims during scrutiny or audit.
How to Avoid the Tax Trap
- File Form 67 before your ITR to claim foreign tax credit.
- Disclose all foreign assets and stock holdings in Schedule FA.
- Track and claim TCS refunds under LRS.
- Monitor forex gains and losses while selling stocks.
- Consult a professional tax advisor if your annual foreign investments exceed ₹10 lakh.
Final Takeaway
Global investing offers excellent diversification, but it also brings complex tax challenges.
If you don’t plan carefully, your returns could shrink by 30–40% due to hidden taxes.
The key is awareness and compliance. Use DTAA benefits, file Form 67 on time, and maintain all records related to LRS and foreign income.
“It’s not what you earn, but what you keep after taxes — that builds lasting wealth,” reminds a veteran investor who first highlighted this growing issue.
By staying informed and compliant, Indian investors can truly enjoy the benefits of global investing — without falling into the tax trap.
Contact taxgiveindia.com for professional support.