New laws and regulations have made investing in overseas stock markets more tax-efficient than ever before. Long-term capital gains tax and the taxation structure for both domestic and international equities have been made simpler by recent modifications to Indian tax legislation.

Gains on shares in India and abroad were subject to different taxes before Budget 2024 because Indian and foreign stocks had distinct holding periods and tax rates. However, international stocks are now subject to the same taxes as Indian stocks.

Long-term capital gains (LTCG) from shares held for more than a year were previously taxed at 10% (above Rs 1 lakh every fiscal year), while short-term capital gains (STCG) from shares listed on Indian stock exchanges were taxed at 15%.

Foreign shares that were listed on the US or international stock markets, however, were taxed similarly to shares that were not listed; calculations were made using a two-year holding term. Although indexation is only permitted after a holding period of more than two years and payment of a 20% LTCG tax rate, gains accrued for up to 24 months were fully taxed.

Effectively, LTCG on the sale of foreign shares was taxed at 20% with the advantage of indexation, whereas STCG on the sale of foreign shares was taxed at 15% when securities transaction tax applies.

Current Tax Rules on Foreign Stocks

All listed assets, including listed shares in India and overseas, now have a one-year holding period.

In the Budget 2024, the long-term capital gains (LTCG) on foreign stocks for resident Indian investors were lowered from 20% (with indexation benefits) to 12.5% (above Rs 1.25 lakh each fiscal year).

In effect, it means that international stocks will be subject to the same LTCG tax as Indian stocks, but with a shorter holding term than previously.

Investing Abroad

The RBI’s LRS regulations and the Tax Collection at Source regulations apply when moving money abroad. The investor’s cash flow is impacted, but the TCS is reimbursed when the ITR is filed. By enabling salaried staff to deduct TDS from their pay and offset the TCS paid (during the LRS transaction), Budget 2024 loosened the TCS regulations. In practice, the salaried investor’s cash flow is unaffected.

Lastly, resident Indians can now open a ‘Foreign Currency Account (FCA)’ in IFSC and can use the funds for any current or capital account transactions in other foreign jurisdictions (outside IFSCs).

Effectively, if you want to send money abroad to invest in the US stock market, you can do so by opening a Foreign Currency Account (FCA) with a bank registered in IFSC-India.