ITR Filing 2022-23 for foreign stock investors: How to show dividends, capital gain taxation (2024)

If taxpayers have foreign investments such as US stocks in their portfolio, they will have to disclose the same in their ITR.

ITR Filing Last Date Extension Trends: Income Tax Return (ITR) filing last date 2022-23 is nearing. The deadline for filing ITR for the assessment year 2022-23 is July 31, 2022. Unless the government extends the last date for ITR filing, taxpayers should file on time to avoid any late filing fees.

If taxpayers have foreign investments such as US stocks in their portfolio, they will have to disclose the same in their ITR. Foreign investments have to be reported in Schedule FA of the ITR-2.

Investment in US stocks is subject to tax for resident Indians and foreign earnings have to be reported while filing one’s income tax return. You could have earned dividend income or capital gains or could have incurred capital loss while investing in US stocks. There are specific rules to deal with them and have to be correctly reported in ITR in order to avoid any income tax notice.

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Importantly, for ITR to be filed for AY 2022-23 with all foreign assets, there’s a change in the ITR Form. In the new ITR forms, the term accounting period has been replaced with a calendar year ending on December 31, 2021. An assessee is required to provide details of all foreign assets held between April 1, 2021, and December 31, 2021, in the case of ITR to be filed for AY 2022-23.

The dividend income earned from US stocks is taxable in the U.S. At 25 per cent. This tax is withheld in US and investors are paid a dividend amount net of tax. While filing ITR 2, this dividend income is taxed as ‘income from other sources as per the investor’s tax slab rate after converting into Indian Rupees. Subsequently, the tax paid in US can be claimed as a foreign tax credit as per Article 25 of the India – US double taxation avoidance agreement (DTAA). Effectively, it ensures that you do not pay tax two times on the same income.

In the case of long term capital gain (more than 24 months), the rate of tax on foreign stocks is 20% and the long term capital gain ( STCG) is at the applicable slab rates. As there is no tax on capital gains income in the US, there is no need for the foreign tax credit. For losses on the sale of US stocks, short term capital loss can be set off against LTCG, but long-term capital loss can be set off against LTCG only.

As an enthusiast in international taxation and investments, I've delved deeply into the complexities of cross-border financial regulations, specifically pertaining to the taxation of foreign investments like US stocks for Indian residents.

Regarding the article you provided, it covers essential aspects related to Income Tax Return (ITR) filings in India for the assessment year 2022-23. Here's a breakdown of the key concepts mentioned:

1. ITR Filing Deadline: The deadline for filing ITR for the assessment year 2022-23 was set for July 31, 2022, subject to possible extensions by the government to avoid late filing fees.

2. Disclosure of Foreign Investments: Taxpayers holding foreign investments, such as US stocks, are required to disclose these holdings in their ITR. These foreign investments should be reported in Schedule FA of the ITR-2 form.

3. Taxation of Foreign Investments: Income from foreign investments, like dividends earned from US stocks, is subject to taxation. Dividend income earned in the US at a rate of 25% is withheld there, and when filing ITR in India, this income is taxed as 'income from other sources' as per the investor's Indian tax slab rate after conversion into Indian Rupees.

4. Double Taxation Avoidance Agreement (DTAA): To prevent double taxation on the same income, India has a DTAA with the US (Article 25), allowing investors to claim a foreign tax credit for taxes paid in the US.

5. Capital Gains Tax: The taxation of capital gains from foreign stocks differs based on the holding period. Long-term capital gains (held for more than 24 months) from foreign stocks are taxed at a rate of 20% in India. Short-term capital gains are taxed at applicable slab rates. Losses on the sale of US stocks can be set off against gains but with specific limitations based on the type of loss.

The provided information highlights the necessity for accurate reporting of foreign assets, understanding tax implications, and leveraging international tax treaties to avoid double taxation.

I'm well-versed in these topics and can provide further details or clarify specific aspects if needed.