Tax on Foreign Stocks, Mutual Funds and Real Estate

One can spread out your risks not only in terms of asset classes but also across geographies, as many Indians have started doing. But one should be aware of the Tax rates too as Tax rates on gains made on the sale of equity shares listed abroad, for instance, are different from capital gains made on Indian equities. This apart, dividend and rental income are taxable as well. Resident (resident and ordinarily resident) Indians have to pay taxes on income earned anywhere and report it in their income tax return forms.

Resident Indians can remit up to $2,50,000 overseas in a year, under the Liberalised Remittance Scheme (LRS). The investments by resident Indians in equities and debt overseas have been rising constantly– from $422.90 million in 2018-19 to $746.57 million in 2021-22, as per data from the Reserve Bank of India (RBI).

How foreign Investments are taxed for Indians

Tax on International stocks or shares

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Income from dividends and capital gains earned on International shares is taxable in India.

If you have been invested in equity shares directly for more than 24 months, any gain made will be treated as long-term capital gains (LTCG) and attract tax at the rate of 20 percent plus cess and surcharge

When the shares are held for less than 24 months the gains would be regarded as short-term gains and are taxable at the slab rates applicable to the individual,

Dividend income earned on equity shares will also be taxed at your income tax slab rate. How are Dividends of International or Foreign Stocks taxed? How to show in ITR covers it in detail

In Capital Gain Schedule for sale of shares of MNC not listed on Indian Stock Exchange choose Sale of Assets other than listed. (in addition to any other capital gain you would have)

Choosing the section in Capital Gains for Foreign Shares

Tax on Fund of Funds investing in Foreign Equities

Fund of funds that invest in foreign equities or international mutual funds, are treated like debt funds in India. You can also claim an indexation benefit that will shrink your taxable LTCG, reducing the tax payable. Like in the case of LTCG netted in India, expenses incurred on the sale of such assets are allowed as deduction from your total income.

The exchange rate will also come into play while computing tax on foreign income. “Income earned in foreign currency is converted into Indian rupees at TT buying rate on the specified date

Dividend income earned on mutual funds will also be taxed at a slab rate.

How to know the tax treatment of Fund investing in International stocks?

Only those mutual fund schemes that invest more than 65 percent of their money in listed Indian stocks are eligible for equity-like tax treatment

Tax on Property

For property sold after two years, LTCG will be taxed at 20 percent after indexation, plus applicable cess and surcharge,

while short-term capital gains will be added to your slab rate

If you earn rental income through your properties outside India, you are liable to pay tax in India. It will be simply added to your taxable income and taxed as per slab rates applicable to you.

However, those with property investments overseas are deprived of certain benefits that someone who owns a house in India is entitled to.

• You get a 30 percent rebate on rental income if the rent is received in India. But if you get rent from abroad the same isn’t available,
• The Tax benefits of up to Rs 1.5 lakh under section 80C on principal repaid and up to Rs 2 lakh under section 24 on interest paid are restricted to home loans taken from Indian banks for a property within India. No taxation deduction is available for a house bought overseas,
• If you sell your residential property in India and use the proceeds to buy another house within a year, the capital gains are exempt from tax. However, this tax break will not be available if you choose to remit that amount abroad to fund a property purchase.

Reporting income from Foreign Investment 

If you have invested overseas, it will have to be disclosed in your annual income tax returns. You will have to enter the details in Schedule FA in ITR

If you miss reporting overseas income and assets to make inaccurate disclosures, you could invite penal action under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

hese foreign assets are required to be reported basis the calendar year of the country in which such assets are possessed and a taxpayer is required to provide details of the country name, nature of ownership, details of the asset, income generated from such asset, etc,

In addition, if your income during the financial year is over Rs 50 lakh,you will also have to share the details in the forms’ Assets and Liabilities Schedule.

To avoid double taxation if you have already paid taxes abroad, the income tax laws provide relief. Where credit of any taxes paid overseas is to be availed, one should not forget to fill the prescribed form 67 giving details of the treaty relief claimed if any

ITR new foreign assets Table A3

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