Income Tax on US Stocks: How to File your Income Tax Return on ClearTax if you Invest in US Stocks?

Thanks to the fintech sector, which has made Wall Street accessible to Dalal Street investors. With a large number of investors punting on the US stock markets, it becomes more important than ever to discuss the compliance requirements in India. This article attempts to enlist all the tax implications and how to use ClearTax to fill the required details in your ITR if you have invested in US stocks.

Tax Implications if you have Invested in US Stocks 

Any resident individual who has invested in US stocks, i.e. equity shares or debt instruments of a US entity, must disclose the details of their holdings in the income tax return(ITR) in India. This disclosure should be given regardless of whether you have made gains from such investments. ITR filing is mandatory if you have invested in US stocks even if their income is below the basic exemption limit of Rs 2.5 lakh, Rs 3 lakhs(60 years or above) and Rs 5 lakh(80 years or above). 
If you invest in US stocks, the taxability of dividends and capital gains are summarized here. You can read this for a detailed explanation. 

Which ITR and Schedules to File if you have Invested in US Stocks?

ITR-2 or ITR-3 will be applicable, depending on your other income details.

The following schedules must be filled in the ITR:

• Capital Gains: If shares were transferred or sold during the year.
• Other Income: If you have received dividend or interest income.
• Form 67: For claiming the tax credit
• Schedule FA:  Details of holding of foreign shares/securities whether sold or not (applies to ‘Resident and Ordinarily Resident)
• Schedule AL: Details of assets and liabilities (if total income is more than Rs 50 lakh)
• Schedule FSI: Details of income from outside India, i.e. gains from shares, dividends or interest, for claiming credit
• Schedule TR: Details of tax refunds in respect of tax claimed as a credit in earlier years.   

How to file ITR on ClearTax if you Invest in US Stocks?

Note: If you have received dividend income from US stocks, it is mandatory to file form 67 before filing ITR.

Documents required for tax filing if you have invested in US stocks

• PAN Card
• Bank statement
• Capital Gains statement
• Foreign Asset filing statement
• Foreign Source of Income Summary
• Form 67 filings summary
• Schedule TR summary
• Other broker statements, if any

Step 1: Enter all the Indian income (refer to this guide for help). If you have sold the US stocks/ETFs, fill up the ‘Capital Gains’ section. Add the dividend and the interest amount received on such stocks in the ‘Other Income’ section in Indian rupees.

Step 2: Select the ‘Tax Saving’ tab and scroll all the way down to the ‘Other Disclosures’ section. Click on the button ‘One of these conditions applies to me’ as the 4th condition applies to you.

Step 3: Navigate to the 4th section-‘Foreign Assets, Income and Taxes’. On this page, you’ll need to fill all the following schedules

• Schedule FSI (Foreign Source Income)
• Schedule TR (Tax Relief) and 
• Schedule FA (Foreign Assets)

Let’s fill each one in turn.

How to fill Schedule FSI (Foreign Source Income)?

Step 4: Enter these details in the respective columns:

• Country (2nd Column): ‘United States of America’
• Tax Identification Number (3rd Column): Passport number 
• Income Head (4th Column): 
  • For capital gains, select ‘Capital gains’ from the dropdown and 
  • For reporting dividend and interest income, select ‘Other sources’ in two different rows.
• Income Outside India (5th column): Enter the capital gains, dividend and interest amount from your broker’s statement in the respective rows
• Tax Paid Outside India (6th Column): 
  • For capital gains, enter ‘0’ and 
  • For dividend and interest income, enter the tax paid amount from your broker’s statement.
• Tax Payable in India (7th Column): Based on the nature of income enter the following:
  • Long-term capital gain: 20% of the amount in the 5th column.
  • Short-term capital gain/Dividend/Interest: Applicable slab rate*Amount in 5th column
• Section under which tax relief is claimed (8th Column): Select ‘90- DTAA with country’
• If DTAA, mention relevant article (9th Column): Based on the nature of income enter the following:
  • Capital gain: 13
  • Dividend: 10
  • Interest: 11

A sample schedule is shown below. ‘Save and Continue’ to proceed.

How to fill Schedule TR?

Step 5: Now scroll down to enter the Schedule TR details. The tax paid outside India will be allowed as credit and offset against tax payable in India. This reduces your tax liability in India. Have you received any tax refund in the current year which was previously claimed as Tax Relief in India? Then such amount must be entered in Schedule TR. Also, enter the assessment year in which such refund amount was claimed as a tax credit.

How to fill Schedule FA?

Below Schedule TR, you’ll find Schedule FA. All the foreign asset details must be filled in here. For reporting US stock details, select option ‘B Details of Financial Interest in any Entity held’

Fill in the schedule. You will find all the details in the broker’s statement.