US ETF Taxation in India – Everything You Need to Know

Meta Description: Understand how US ETF taxation in India works, including short-term and long-term capital gains tax, dividend taxation, and the applicable tax rates for Indian investors.

US ETF Taxation in India – An Overview

Investing in US ETFs has gained popularity among Indian investors seeking global diversification. However, understanding US ETF taxation in India is crucial for managing tax liabilities effectively. Indian residents investing in US ETFs are subject to capital gains tax and dividend tax, which differ from domestic ETF taxation.For those exploring the Tax on US Stocks In India, it’s important to note that Indian residents investing in US ETFs are subject to capital gains tax and dividend tax, which differ from domestic ETF taxation.

How are US ETFs Taxed for Indian Investors?

When an Indian investor trades US ETFs, taxation is applied under the following categories:

Capital Gains Tax: Applicable on the profit earned when selling an ETF.
Dividend Tax: Tax levied on dividends distributed by the ETF provider in the US.

Capital Gains Tax on US ETFs in India

The taxation of capital gains on US ETFs depends on the holding period:

Holding Period	Tax Type	Tax Rate
Less than 24 months	Short-term capital gains (STCG)	As per the investor’s income tax slab
More than 24 months	Long-term capital gains (LTCG)	20% with indexation benefit

Short-Term Capital Gains (STCG): If US ETFs are sold within 24 months, the gains are taxed at the investor’s applicable income tax slab rate.
Long-Term Capital Gains (LTCG): If the holding period exceeds 24 months, the gains are taxed at 20% with indexation benefits, reducing the effective tax burden.

Dividend Tax on US ETFs

Dividends from US ETFs are taxed at 25% in the US, as per the US-India Double Taxation Avoidance Agreement (DTAA).
The tax is deducted at source (TDS) in the US before the dividend is credited to the investor’s account.
In India, dividend income is added to the investor’s taxable income and taxed as per the individual’s income tax slab.
Investors can claim a Foreign Tax Credit (FTC) under DTAA to avoid double taxation.

Tax Implications of Investing in US ETFs

Taxation on sale of ETFs: Gains are taxed based on the holding period (STCG or LTCG rates apply).
Tax Deduction at Source (TDS): US government deducts 25% tax on dividends before paying Indian investors.
Foreign Tax Credit (FTC): Investors can offset US TDS against their tax liability in India under DTAA.
Filing Requirement: Investors must report foreign investments in their Income Tax Return (ITR).

Key Considerations for Indian Investors

LRS (Liberalized Remittance Scheme): Investments in US ETFs are made through the LRS limit of $250,000 per year.
Reporting in ITR: Indian investors must disclose US ETF investments under Schedule FA (Foreign Assets) in ITR.
Currency Risk: Gains/losses also depend on INR/USD exchange rate fluctuations.

Conclusion

Understanding US ETF taxation in India is vital for investors looking to diversify their portfolio with global assets. Investors should consider capital gains tax, dividend tax, and compliance with ITR reporting while planning their investments in US ETFs.Moreover, if you’re navigating US Stock Investment From India, staying informed about tax obligations can help optimize your financial strategies.