Any resident individual holding equity or debt interest in the entity located in the U.S. needs to disclose about the same in the income tax return in India. The Indian income tax law requires mandatory filing of the income tax return for the resident individuals who hold specified foreign assets and income or signing authority in foreign A/c. The income tax return filing is necessary for such individuals even if their income is below the basic exemption limit.
The income tax return contains a ‘Schedule FA’ for the declaration of the foreign assets or accounts in respect of which you are a legal owner, a beneficiary, or a beneficial owner. A ‘beneficial owner’ is a person who has provided consideration for the purchase of an asset, for which he or any other person can take benefit of the asset. ‘beneficiary’ is a person who has not paid for the purchase of an asset, but derives benefit from the asset during the financial year.
The taxpayer must report the details in an appropriate ITR form, i.e. ITR-2 or ITR-3, whichever ITR form applies to him.
The following details should be provided while Filing Income tax Returns if the Assessee has Foreign assets and Income or signing authority in foreign A/c during the relevant accounting period
- Foreign Depository/Custodial accounts.
- Investments in Foreign Equity/Debts
- Surrender Value of Foreign Insurance/Annuity Contract
- Financial Interest in any entity
- Immovable property
- Other Capital assets
- Details of account in which there is a Signing authority
- Trust in which Assessee is a Trustee/Beneficiary/Settlor
Tax Implications on stock trading in the US
Tax dividends
When determining the tax on US stocks in India, dividends paid from US stocks must also be considered. This amount is subject to a flat 25% tax rate. As a result, if the firm declares a $100 dividend, you will receive $75. Because of the India-US tax treaty, this is lower than the regular tax rate for foreign investors in the US.
Furthermore, dividends received in cash or reinvested are taxed in India at the applicable income tax slabs by adding them to your existing income. However, India and the United States have a Double Taxation Avoidance Agreement (DTAA) that permits you to use the tax withheld in the United States to offset your Indian tax burden.
Capital gains on foreign shares
Another sort of tax on stock trading in the United States is capital gains tax. In the United States, there is no tax on capital gains for non-resident. As a result, if you acquire shares worth $500 and sell them for $800, you will owe no tax in the United States on the $300 capital gain. However, you will be required to pay taxes in India on this gain.
Disclosure requirements under Schedule FA
The resident taxpayer (resident but ordinarily resident) has to mandatorily give all the information about the foreign assets, account, etc., in Schedule FA of the ITR form in a specified format. Non-resident or resident (but not ordinarily resident) individuals are not required to report in schedule FA.
If the resident individual holds U.S. equity shares, he must report it under Investments in Foreign Equity/Debts in Table A3 of Schedule FA of the income tax return.
In Table A3, you need to report the following details:-
- Country name and code
- General information about the foreign entity, such as name, address, zip code, nature of the entity
- Date of acquisition of equity or debt instrument
- Initial value of the investment
- The peak value of the investment during the accounting period
- The closing value of the investment as at the end of the accounting period
- Gross interest received
- Total gross proceeds from sale or redemption of investment during the accounting period
Such information is required to be disclosed after converting into Indian currency.
You need to report in the said Schedule FA even if you are holding the U.S company corporate bonds as well.
For instance, If you bought U.S stocks of Rs 57,000 (converted price) in August 2019, you need to report its details in Schedule FA of ITR-2/ITR-3 of FY 2019-20. Assume that the accounting period of the foreign stocks is the financial year.
Further, if you bought additional Rs 65,000 worth of shares in August 2023, you have to report these shares in Schedule FA of ITR of FY 2023-24. Also, you have to report the shares bought in August 2022 if they are held in FY 2022-23.
When to Report?
The reporting of foreign currency or assets in the ITR of FY 2023-24 will depend upon the accounting periods of the foreign country as below:
- 1st January 2023 – 31st December 2023: If the foreign assets, foreign accounts, etc. are acquired between 1st January 2023 – 31st December 2023, and the assets/accounts belong to the foreign country/jurisdiction where calendar year is considered for the closing of accounts and return filings.
- 1st April 2023 – 31st March 2024: If the foreign assets, foreign accounts, etc. are acquired between 1st April 2023 – 31st March 2024, and the assets/accounts belong to the foreign country/jurisdiction where the financial year is considered for the closing of accounts and return filings.
- That period of 12 months, ending on any day succeeding 1st April 2023, in respect of foreign assets, accounts held in the foreign country/jurisdictions where the other 12 months accounting or tax filing period is adopted.
For instance, assuming the resident individual acquires a foreign asset in July 2023 from the foreign country. And the said foreign country follows the calendar year for tax filing and closing of accounts. Then, the resident individual will be required to report the same in the income tax return of the FY 2023-24 and for the foreign assets acquired in February 2024, the taxpayer shall report it in the income tax return of FY 2024-25.
Rate of exchange for conversion
For conversion of the foreign asset or foreign-sourced income in Indian currency, the rate of exchange shall be “telegraphic transfer buying rate”.
“Telegraphic transfer buying rate” is the exchange rate adopted by the State Bank of India for buying such currency, where such currency is made available to the bank through a telegraphic transfer.
Other reporting requirements
The resident individuals holding U.S. stocks during the financial year, i.e. as of 31st March 2024, are required to fill the asset-liability schedule, i.e. Schedule AL (if total income > Rs 50 lakh), in addition to Schedule FA.
The taxpayer shall report assets and liabilities in Schedule AL as below:
- Immovable assets- Land and building
- Financial assets- Bank deposits, shares and securities, insurance policies, loans and advances given, cash in hand
- Movable assets– Jewellery, bullion, vehicles, paintings, artworks, yachts, boats, aircraft etc.
- Taxpayer’s interest in the assets of a firm or association of persons (AOP) as a partner or member, respectively
- Liability relating to the above assets
