By CA Mohit S. Shah
1. Taxation of Dividends from Foreign SharesUnderstanding tax on foreign dividend income in India is very crucial. Dividends received from foreign companies are fully taxable in India under the head ‘Income from Other Sources’ and are taxed at the slab rate applicable to the taxpayer. Most countries outside the U.S. deduct tax before paying dividends. In the U.S., the U.S. government withholds 25% tax on dividends paid to Indian residents.
If an individual wants to claim Credit for this tax in India, a Statement of Foreign Income and Foreign Tax Credit in Form 67 must be filed before filing the ITR. Proof of tax deducted abroad, such as Form 1042-S issued by the U.S. broker, must be uploaded along with Form 67. If Form 67 is not filed, the Foreign Tax Credit cannot be claimed, even if tax was deducted abroad.
2. Taxation of Capital Gains from Foreign SharesForeign shares are always treated as unlisted shares in India because they are not listed on a recognized Indian stock exchange.
If foreign shares are held 24 months or less, the gains are short-term and taxed at slab rates.
If held more than 24 months, the gains are long-term.
For foreign shares sold on or after 23 July 2024, Long-Term Capital Gains (LTCG) are taxed at 12.5% without indexation.
3. Applicable ITR Form and Relevant SchedulesIndividuals holding foreign shares must file ITR-2 (if there is no business income) or ITR-3 (if there is business/professional income).
Relevant schedules include:
Schedule OS, Schedule CG, Schedule FSI, Schedule TR, Schedule FA, Schedule AL, and Form 67.
4. Mandatory Foreign Asset Reporting in Schedule FAMandatory ITR filing applies to a Resident and Ordinarily Resident (ROR) who holds any foreign asset or has any foreign income.
Schedule FA requires reporting of all foreign assets even if income is NIL or below exemption limits.
5. Schedule FA – Understanding A2 and A3A2 – Foreign Custodial Accounts (broker details)
A3 – Investments in Foreign Equity and Debt (lot-wise reporting)
6. Mandatory Reporting in Schedule FSI and Schedule TRForeign Tax Credit can be claimed under Section 90 or Section 91 and must be reported correctly.
7. Penalties Under the Black Money ActNon-disclosure can lead to:
30% tax
90% penalty
₹10 lakh additional penalty
Imprisonment (6 months to 7 years)
8. Documents RequiredTransaction summary
Dividend report
Form 1042-S
Broker statements
copyright number
Holding statement
9. Final TakeawayAccurate reporting ensures compliance and long-term financial security.
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