New rules and regulations have made investing in global stock markets more tax-effective. Recent changes in Indian tax laws have simplified long-term capital gains tax and streamlined the taxation structure for Indian and foreign stocks.
Before Budget 2024, gains on shares sold in India and overseas were taxed differently due to differences in holding period and tax rates between Indian and foreign stocks. But, now taxation of foreign stocks is on the same level as stocks listed in India.
Capital Gains Tax Rules – Earlier
Short-term capital gains (STCG) from shares listed on Indian stock exchanges were taxed at 15%, while long-term capital gains (LTCG) from shares held for more than a year were taxed at 10% (above Rs 1 lakh every fiscal year).
However, foreign shares listed on the US or global stock exchanges were taxed similarly to unlisted shares, with a holding period of 2 years used for calculations. Gains made for up to 24 months were fully taxed, although indexation is available only after a holding term of more than two years and payment of a 20% LTCG tax rate.
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.
Capital Gains Tax Rules – Now
The holding period of all listed assets will be now one year and this includes listed shares in India or abroad.
For resident Indian investors, the long-term capital gains (LTCG) on global equities have been reduced to 12.5% (above Rs 1.25 lakh every fiscal year)in the Budget 2024, down from the previous rate of 20% (with indexation benefits).
Effectively, it means the LTCG tax on foreign stocks will apply after a lower holding period now than earlier and taxed at the same rate as Indian equities.
Tax Collection at Source
While sending money overseas, the RBI’s LRS rules and the Tax Collection at Source rules come into play. The TCS gets refunded at the time of filing the ITR but impacts the investor’s cash flow. Budget 2024 relaxed the TCS rules by allowing salaried employees to now offset the TCS paid (at the time of the LRS transaction) against TDS to be deducted from their salaries. Effectively, cash flow doesn’t get impacted for the salaried investor even after remittances abroad.
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 or for your children’s education, you can do so by opening a Foreign Currency Account (FCA) with a bank registered in IFSC-India.