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

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

ITR Filing 2022-23 for foreign stock investors: How to show dividends, capital gain taxation
For ITR to be filed for AY 2022-23 with all foreign assets, there is a change in the ITR Form.

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.

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.

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