New Taxation Rules on US stocks | All you need to know | INDmoney

New Taxation Rules on US Stocks | All You Need to Know | INDmoney

Investing in US stocks has always been a popular choice among Indian citizens. With the Budget 2024 announcement, there are some significant changes to the tax rules that have caught the attention of investors. In this article, we'll break down these new rules for better understanding.

Long Term Capital Gains Tax (LTCG)

For Indian citizens investing in US stocks, the Long Term Capital Gain Tax (LTCG) has been reduced from 20% to 12.5%. This tax is applicable when you hold your stocks for more than 24 months and then sell them for a profit.

To put this into perspective, let’s consider an Indian investor who has invested Rs 7 lakh annually in the S&P 500 index over the past five years, leading to a total invested amount of Rs 35 lakh. With an annual return of 15%, the future value would be around Rs 70.39 lakh.

Before Budget 2024, the applicable tax rate was 20% plus indexation benefits. The capital gains would be Rs 15.59 lakh, and the tax paid would be Rs 3.1 lakh. But post-announcement, the tax rate is now 12.5%, minus any indexation benefit. Capital gains would be Rs 19.27 lakh, and the tax paid would come down to Rs 2.4 lakh, resulting in a saving of Rs 70,000.

Understanding Indexation

Indexation adjusts your investment cost for inflation. Imagine you bought a gadget for $ 100 a few years ago, and now it costs $ 120 due to price increases. Indexation helps you account for this price increase when calculating your profit. Thus, when you sell an investment like US stocks, you pay tax on the actual profit, not the inflated amount.

Short Term Capital Gains Tax (STCG)

Short Term Capital Gains Tax (STCG) remains unchanged in this year's budget. It is applicable when you sell your stocks within 24 months of purchase. Profits here are taxed according to your income tax slabs. For instance, if you bought shares at $ 1000 and sold them at $ 1500, the $ 500 profit would be taxable as per your income tax slab.

New Offsetting Benefit for TCS on Salaries

An exciting new benefit from this year's budget is the ability to offset Tax Collected at Source (TCS) on your salaries’ Tax Deducted at Source (TDS). Earlier, if your investment in US stocks was less than Rs 7 lakh, you had to pay 20% TCS, which remained the same for investments over Rs 7 lakh. Refunds were available only at the year-end during advance tax filings.

Now, you can simply submit your TCS certificate to your company's finance department to offset TDS, thereby increasing your in-hand salary. This change makes it even more profitable for investors to invest in US stocks.

So, if you want to explore the US market and take advantage of these new tax rules, head to the INDmoney website and start investing today.

Keywords

• LTCG
• STCG
• Indexation
• TCS
• TDS
• US Stocks
• Budget 2024
• Capital Gains Tax
• Investment

FAQ

1. What is the new tax rate on long-term capital gains from US stocks for Indian investors?

• The new tax rate has been reduced from 20% to 12.5%.

2. How long do I need to hold US stocks to qualify for long-term capital gains tax?

• You need to hold the stocks for more than 24 months.

3. What is indexation, and how does it affect my capital gains tax?

• Indexation adjusts your investment cost for inflation, ensuring you do not pay tax on inflation but on real profit.

4. Has there been any change in the short-term capital gains tax for US stocks?

• No, the short-term capital gains tax remains unchanged and is taxed according to your income tax slabs.

5. What is the new benefit regarding TCS on salaries?

• You can now offset TCS on your salaries’ TDS, increasing your in-hand salary by submitting your TCS certificate to your company's finance department.