Investing in US Stocks from India in 2026: Tax on Gains and Dividends, 25% US Withholding, Form 67, Schedule FA and the Estate Tax Trap

US stocks bought from India are taxed here on gains and dividends, must be shown in Schedule FA, and need ITR-2 or ITR-3, not ITR-1.

Kavya, a software engineer in Rajkot, has been buying US shares through an investing app since 2023, putting in about Rs 1 lakh a month. In 2025 she sold some shares for a gain of Rs 3.2 lakh and received dividends from which US tax had been cut. She filed ITR-1 in July as usual without mentioning any of it, and has now learnt that the income tax department receives account data from other countries.

Investing abroad now takes a few taps on a phone, and many young professionals in Gujarat hold US shares and ETFs. The investing is simple; the tax and reporting are not. Here is how it works in 2026.

Our team files returns with foreign income, Schedule FA and foreign tax credit, and fixes past returns. Call or WhatsApp +91 82005 28355, or see the details at the end of this guide.

Sending money abroad to invest

• Limit: USD 2.5 lakh a financial year per person under the Liberalised Remittance Scheme, for all purposes together.
• Allowed: listed foreign shares, ETFs and mutual funds, as portfolio investment.
• Not allowed: remittances for margin trading or margin calls on overseas exchanges.
• TCS: 20% on investment remittances above Rs 10 lakh in a year, adjusted against your tax in the return. See TCS on foreign remittance.

How the US taxes you

• Form W-8BEN: filed with your broker, it tells the US that you are a resident of India.
• Dividends: US tax of 25% is withheld under the India-US tax treaty, instead of 30%.
• Capital gains: generally not taxed in the US for an Indian resident.

How India taxes dividends and gains

• Dividends: taxed at your slab rate. The US tax withheld is allowed as a credit, up to the Indian tax on that income, if Form 67 is filed in time. Without the form, the credit can be lost.
• Capital gains: US shares count as unlisted shares in India. Held for more than 24 months, the gain is long-term and taxed at 12.5% without indexation; otherwise it is taxed at your slab rate.
• No exemption: the Rs 1.25 lakh yearly exemption on long-term gains applies only to Indian listed shares and equity funds. See tax on shares and mutual funds.
• Rupee conversion: gains are worked out in rupees, so a falling rupee adds to the taxable gain.
• RSUs and ESOPs from a foreign employer: taxed as salary when they vest, and again as capital gains on the rise in value when sold.
• Advance tax: no tax is deducted in India on this income, so large dividends or gains need advance tax.

Reporting in your return

• Right form: ITR-1 cannot be used by anyone with foreign assets or foreign income. Use ITR-2, or ITR-3 if you also have business income.
• Schedule FA: list every foreign holding, including shares, cash with the broker and foreign bank accounts, with peak and closing values for the calendar year. For the return filed in 2026, that is January to December 2025.
• Even without income: holdings must be reported even in a year with no sale and no dividend.
• Schedules FSI and TR: show the foreign income and the tax credit claimed.
• Check AIS: the TCS collected on your remittances should appear in your annual information statement. See AIS and Form 26AS.

If you missed it

• Revise by 31 December 2026: a return for 2025-26 that left out foreign holdings or income can be revised, even from ITR-1 to ITR-2.
• Penalty risk: not reporting foreign assets can attract a Rs 10 lakh penalty under the Black Money Act, unless the foreign assets other than immovable property total Rs 20 lakh or less.
• Earlier years: foreign assets or income left out of earlier returns may be covered by the FAST-DS scheme, open until 31 December 2026. See FAST-DS 2026.

The US estate tax trap

• The risk: when a non-US holder dies, US shares held directly above USD 60,000 can attract US estate tax of up to 40%, and India has no estate tax treaty with the US to reduce it.
• Ways around it: Indian mutual funds that invest in US shares, or funds domiciled outside the US, generally keep you outside this tax.
• Nominees: add nominees with the broker, and make sure your family knows about the account.

Back to Kavya. Her July return is revised in ITR-2 before 31 December 2026. The Rs 3.2 lakh gain on shares held for less than two years is taxed at her slab rate, the dividends are taxed with credit for the 25% US tax after Form 67 is filed, and each holding goes into Schedule FA with its peak and closing value for 2025. The TCS on her remittances above Rs 10 lakh is claimed as a credit. From this year she pays advance tax on her US income and has her return prepared with the foreign schedules from the start.

How we help

• Returns with foreign shares, dividends, RSUs and ESOPs
• Schedule FA, FSI and TR, and Form 67 for foreign tax credit
• Revised returns before 31 December, and FAST-DS declarations
• LRS and TCS planning for remittances
• Advance tax on foreign income
• Planning for foreign holdings and nominations, with your lawyer

Gadhia Associate has been in practice since 2007 and has handled work for over 7,000 clients, with a 5.0 Google rating from more than 100 reviews. Investors from Junagadh, Rajkot, Jamnagar and Ahmedabad come to our Junagadh office, where same-day appointments are available, and returns for clients across India are handled online.

Hold US shares and filed ITR-1, or skipped Schedule FA? Fix it before 31 December 2026. Call or WhatsApp +91 82005 28355, or message us on WhatsApp. The first consultation is free.

Frequently asked questions

Is income from US stocks taxable in India?

Yes. A resident is taxed in India on dividends and capital gains from US shares, with credit for US tax withheld.

What is the tax on US stock dividends for Indians?

25% is withheld in the US, and the dividend is taxed at your slab rate in India, with the US tax allowed as a credit.

How are capital gains on US shares taxed in India?

At 12.5% if held for more than 24 months, and at slab rates otherwise. The Rs 1.25 lakh exemption does not apply.

Can I file ITR-1 if I hold US stocks?

No. Anyone holding foreign assets must use ITR-2 or ITR-3 and fill in Schedule FA.

What is the penalty for not reporting foreign assets?

Rs 10 lakh under the Black Money Act, unless the foreign assets other than immovable property total Rs 20 lakh or less.

Is there TCS on sending money abroad to buy US stocks?

Yes, 20% on investment remittances above Rs 10 lakh in a financial year, which you claim back in your return.

Position as of 25 October 2026. Returns for 2025-26 are under the Income-tax Act, 1961, and later years under the Income-tax Act, 2025, where form numbers may change. US tax rules and treaty rates are summarised here, so take advice on your own holdings.