Indian Taxes on US stock trades and dividends

[kulkama]

Hi,

I am Indian resident and citizen. I am NRA with respect to USA.

1) I have sold shares of a NASDAQ listed company in Feb. 2011 [which were purchased in June 2008 when I was living in the USA as a NRI] with some capital gains. Do these gains qualify as LTCG as per Indian Tax law? What would be the tax rate? Which date's conversion rate ($ to Rs) needs to be used? Can I use Indexation method (this creates in fact a capital loss)?

2) I have received dividends on my US listed ETFs and stocks. The brokerage firm has deducted 25% tax at source (as I had filed W8BEN form). Do I need to pay tax on this income to Indian tax authorities? If yes, what is the rate?

3) What is the Indian tax rate on Interest income received from US bank deposits?

Thanks...

Kulkama

[anuj106]

1. The said shares shall not qualify as LTCG as the period of holding was less than 36 months . The tax rate shall be 20% + 3% cess. Conversion rate of date of sale should be used. Benifit of indexation shall be available.

2. Yes tax needs to be paid bur credit of TDS deducted in US shall be available.

3. US Bank deposit shall be added in total income for calculation of tax .


Cheers,
Anuj

[kulkama]

Anuj,

Thanks for your reply. I really appreciate it.

However, please refer to article by Shalini Jain (Sr. Tax Professional, Ernst & Young) in the "Wealth" section of the Economic Times (Aug. 29-Sept 4, 2011). As per this article, overseas shares held for more than 12 months will attract LTCG, and with indexation you pay 20% tax on it. This article further says that for other (than stock/share) overseas capital gains, holding time is >36 months for the LTCG.
This is contradictory to your comment. Just wanted to bring to your notice. Is there a specific rule/section of IT Act (or the DTC) which can clarify this?

With best regards.
Kulkama

Added by RRK:
Link to the article referred here.
http://articles.economictimes.indiatimes.com/2011-08-29/news/29941409_1_long-term-capital-tax-on-capital-gains-tax-implications

[anuj106]

Thanks Kulkama,

I agree that there has been a lapse on my part. Yes indeed in case of share of any company (including shares of foreign Company) the period of reckoning shall be 12 months and not 36 months.

Kulkama, i again thank you for pointing the error in my post.

Regards,
Anuj

[ps001]

This thread has been very informative ...Thanks to Anuj and Kulkama.

However I still have questions regarding the income received from foreign banks/investments (I am a USC/OCI with a "resident" status in India).

Majority of my foreign income (95%) is in the form of dividends and 5% as bank interest.

1. My first question is how to report this income.

2. Second is what is the income tax rate applied for this income. Is this income clubbed together with my salary income in India and taxed at the rate of default tax slab rate?

3. Is there any mechanism to apply for tax credit if this income is already reported and taxed in the US tax return.

Thanks for your help

-PS

Thanks Kulkama,

I agree that there has been a lapse on my part. Yes indeed in case of share of any company (including shares of foreign Company) the period of reckoning shall be 12 months and not 36 months.

Kulkama, i again thank you for pointing the error in my post.

Regards,
Anuj

[anuj106]

Thanks ps001 for your kind words,please find my answers in blue below your query.

This thread has been very informative ...Thanks to Anuj and Kulkama.

However I still have questions regarding the income received from foreign banks/investments (I am a USC/OCI with a "resident" status in India).

Majority of my foreign income (95%) is in the form of dividends and 5% as bank interest.

1. My first question is how to report this income.
The said income shall be disclosed as "income from other sources"

2. Second is what is the income tax rate applied for this income. Is this income clubbed together with my salary income in India and taxed at the rate of default tax slab rate?

Yes the income shall be clubbed with your salary income and default tax slab rate shall be applicable.

3. Is there any mechanism to apply for tax credit if this income is already reported and taxed in the US tax return.

You can claim tax credit of taxes paid in US in the Indian Income Tax Return by filing the relevant details in in the column of "relief under sec. 90/91"

Thanks for your help

-PS

[ps001]

Dear Anuj, thank you for taking time to reply to my queries. -PS

[sacsharm]

This thread is of interest to me also as I am in same situation as ps001. Have some additional questions:

1) Addition of US dividend income will obviously increase Indian tax liability. I incurred capital loss in US - can I add that to my Indian capital gains / losses so as to offset some of tax liability because of dividends?
2) In foreign asset declaration, I am assuming we should also declare retirement accounts like 401k, please confirm? Is there tax liability because of those? Should not be, hopefully.
3) Financial year in US is Jan. - Dec. so, to simplify, is it ok to go with that for Indian taxes? And continue to follow the practice in subsequent years?

Thanks for your help.

S.

[ps001]

Hi Sacsharm: I too have similar questions. I too wonder whether a retirement account like 401 K is to be declared as foreign asset. In my mind it would be most unfair to treat 401K, IRA as foreign assets and treat any income from this to be taxable in India (as it is the returns in US are very low and if one has to pay wealth tax of 1%, your returns for retirement income can quickly evaporate to practically nothing, secondly any withdrawal from retirement account is taxed by Uncle Same so if one has to pay taxes on the income from retirement fund, you get hit thrice: you pay US taxes, you pay Indian taxes and on top of it you have to pay wealth tax of 1%.

I am now wondering whether it is a good idea to R2I after all? :angry: I would love to know the views of others in this matter.

You also raise a very interesting question the difference of FY between US and India. I could not figure out how to calculate dividend and interest income (all 1099 DIV/INT) in US are issued at the end of year and not always possible to accurately calculate income from April 1 to March 31 (FY in India) without wrecking your brain so in my opinion the most straight forward way would be to report the income that has been reported to IRS (through 1099 DIV/INT) at the end of the year and consistently follow this. But it is my opinion only and I would like to hear how others in the similar situation are handling the matter.

After going through all these tax matters I am coming to conclusion that it is best to stay in the country of which you are a citizen otherwise life can be very complicated :-):wink