Tax: Foreign shares attract 20% LTCG tax with the benefit of indexation. Along with tax, you will also have to pay 4% health and education cess.
Tax: Investing in the foreign market to diversify the portfolio is a good thing, but you should know that the taxation rules for the return on foreign investment are different from the rules applicable to equity investments in India.
Taxes are levied at different rates for direct and indirect investments in the foreign market.
Investment in foreign market:
It is possible for an investor to invest in the foreign market in three ways. You can invest directly by buying shares through a foreign broker, investing in schemes of foreign mutual funds or opting for schemes of Indian fund houses investing in foreign companies.
Taxes on Equity Investments in India:
Short Term Capital Gains (STCG) of 15% is applicable for investments in listed shares or equity-oriented schemes in India for a tenure of less than 12 months.
Long Term Capital Gains (LTCG) tax of 10% is applicable on gains exceeding Rs.1 lakh along with indexation benefit on gains over a period beyond that.
Tax on equity investment abroad:
Foreign shares are treated at par with unlisted shares. If such foreign stocks are held for more than 24 months, the gain from their sale will be classified as long-term, otherwise counted as short-term.
Foreign shares are taxed at 20% LTCG with the benefit of indexation, while Short Term Capital Gains (STCG) will be taxed as per slab rates. Along with tax, you will also have to pay 4% health and education cess.
Tax on Dividend:
If you have shares of companies like Apple, Google, Amazon then there is no need to worry, because these companies
But if dividend is received from other foreign stocks, it will be counted under ‘Income from other sources’ and you will have to pay tax as per the tax slab.
Tax on investment through mutual funds:
If you have invested directly through foreign mutual funds or indirectly through Indian mutual funds, then the profit after 36 months is considered as long term.
20% LTCG tax has to be paid after indexation benefit. If there is a profit on the investment of less than 36 months, then STCG tax will have to be paid as per the tax slab.
What to show in ITR:
According to CA Satish Shah, Income Tax Practitioner and Partner, Shah Consultancy, you are required to furnish details of foreign assets in the Schedule FA while filing income tax return.
You can claim relief in LTCG tax if you invest the long-term capital gains money in a residential property after fulfilling certain conditions.
