Most guides to investing in US stocks from India blur together two readers who face genuinely different rules: a resident Indian funding a US brokerage account by remitting money out of India, and an NRI (Non-Resident Indian) already living and earning abroad who never needs to move money out of India to invest. The Liberalised Remittance Scheme (LRS) - the $250,000 annual cap most articles mention - applies to the first group only. NRIs cannot use LRS at all; it’s a scheme for resident Indians sending money abroad, and an NRI investing from foreign income was never sending money “out of India” in the first place.
That distinction shapes everything else in this guide, from how much you can invest to what India taxes when you do. This covers the US-India tax treaty (the DTAA), the 25% dividend withholding rate, how India taxes capital gains on US stocks - treated, perhaps surprisingly, as “unlisted shares” - and the practical mechanics of claiming a foreign tax credit for both groups.
Resident vs. NRI: Two Different Starting Points
If you’re a resident Indian funding a US brokerage account, your outward remittance falls under the Reserve Bank of India’s Liberalised Remittance Scheme: up to $250,000 per financial year for permitted transactions, including buying foreign securities. Remittances for investment purposes attract 20% Tax Collected at Source (TCS) on the amount above ₹10 lakh in a financial year - no TCS applies to the first ₹10 lakh remitted. This TCS is not an additional tax; it’s collected upfront and can be claimed as a credit against your final Indian income tax liability, but it does mean less cash reaches your US brokerage account at the moment of transfer than the nominal remittance amount.
If you’re an NRI, LRS doesn’t apply to you - it’s specifically a resident-Indian remittance scheme. You fund a US brokerage account directly from foreign-earned income, with no $250,000 cap and no TCS. Your Indian tax exposure is narrower too: NRIs are generally taxed by India only on India-sourced income, so if your US brokerage account, US employment income, and US-source investment gains never touch India, none of the domestic capital gains and dividend rules below may even apply to you - though the moment you have India-source income or bring funds into India, that income is assessed under the same rules as a resident’s.
Where the rules converge: once income is taxable in India - which is essentially always the case for a resident, and depends on source/remittance for an NRI - both groups face the same DTAA-based US withholding rates and the same Indian capital gains and dividend treatment described below.
The Treaty (DTAA): Dividend and Capital Gains Rates
India and the US have maintained a Double Taxation Avoidance Agreement (DTAA) since 1989. Under Article 10, the treaty caps US withholding on dividends paid to Indian individual investors at 25% - not the 15% many European investors receive, because the lower 15%/5% tiers in the treaty’s dividend article are reserved for corporate shareholders meeting specific ownership thresholds, which doesn’t describe an individual retail investor.
| Income Type | Default US Rate | DTAA Treaty Rate |
|---|---|---|
| Dividends (individual) | 30% | 25% |
| Interest | 30% | 15% (generally) |
| Capital gains (securities) | Not generally taxed for non-residents under US domestic law | Each country taxes under its own domestic law - in practice, only India taxes, since the US doesn’t tax non-resident portfolio gains |
Sources: India-US Double Taxation Avoidance Agreement (1989); IRS Publication 515 (2026); PwC and RSM coverage of India-US treaty dividend withholding (2026).
Claiming the 25% rate (instead of the 30% default) requires Form W-8BEN filed with your US broker - the same mechanism used across every country in this treaty series, just landing at a less favorable rate than most.
Capital Gains: Why “Unlisted Shares” Matters
This is the detail most guides for Indian investors get wrong or skip: for Indian tax purposes, shares of a US company - even one listed on the NYSE or NASDAQ - are classified as unlisted shares, because they aren’t listed on a recognized Indian stock exchange. That classification changes both the holding period that defines “long-term” and the rate that applies.
Long-term (held more than 24 months): taxed at a flat 12.5%, without indexation, plus applicable surcharge and 4% health and education cess. This rate was confirmed unchanged for FY 2026-27 in the Union Budget.
Short-term (held 24 months or less): taxed at your regular income slab rate, not a preferential capital gains rate - with surcharge and cess, the effective rate can reach 39% or higher for investors in the top bracket.
The exemption that doesn’t apply to you: Indian investors are used to the ₹1.25 lakh annual exemption on long-term gains from Indian-listed shares under Section 112A. That exemption is specific to domestically listed securities. It does not apply to US stocks. The first rupee of long-term gain on a US stock is taxable at 12.5% - there is no equivalent allowance to plan around.
The 24-month threshold for “long-term” is also longer than the 12-month period that applies to Indian-listed shares - a detail worth tracking carefully if you’re used to the domestic rule and assume it carries over.
Dividends: 25% US, Then India’s Slab Rate
When a US dividend arrives, two layers of tax apply in sequence, the same structural pattern as most other countries in this series - just with a less favorable starting rate.
US side: 25% withheld at source with a valid W-8BEN (30% without one).
Indian side: the gross dividend is taxed at your income slab rate - for high earners, this can reach 30% plus surcharge and cess, well above the US rate. A foreign tax credit is available for the 25% already paid to the US, capped at the Indian tax otherwise due on that same income.
Worked example: an investor in the 30% slab (plus 4% cess, no surcharge assumed) receiving a $2,000 US dividend faces $500 US withholding (25%) and approximately $624 Indian tax (31.2% effective on slab + cess) before the credit; crediting the $500 already paid to the US leaves roughly $124 owed to India - a combined effective rate close to 31%, with the credit preventing the two layers from simply stacking to 56%.
Claiming the Foreign Tax Credit: Form 67
To credit the US withholding against Indian tax, you file Form 67 electronically on the income tax portal, alongside your return. It documents your foreign income, cites the relevant DTAA article, and requires proof of US tax paid - typically your broker’s Form 1042-S, issued by March 15 each year.
Deadline flexibility: Form 67 can be filed by the end of the relevant assessment year (March 31, 2027, for AY 2026-27) - later than the standard return-filing deadline. Recent Income Tax Appellate Tribunal (ITAT) rulings have also held that a late Form 67 filing is a procedural defect, not grounds to deny the credit outright, provided the foreign tax was genuinely paid - useful to know if you miss the original deadline, though it isn’t a reason to file late by choice.
Claiming the Rate: Your W-8BEN
Form W-8BEN goes to your US broker, not the IRS, and activates the 25% DTAA rate in place of the 30% default.
Verification: check your dividend statement. 25% confirms the treaty rate is applied; 30% means the form is missing or has lapsed. As with every country in this series, the form is valid for three calendar years from signing, and renewal is your responsibility - brokers don’t reliably remind you.
Your Next Steps as an Indian Resident
Resident Indian investing in US stocks:
- Track outward remittances against the $250,000 LRS annual cap
- Budget for 20% TCS on investment remittances above ₹10 lakh in a financial year - recoverable as a credit, but a real cash-flow cost at the time of transfer
- File W-8BEN with your broker; confirm 25%, not 30%, on dividend statements
- Track holding periods per lot - 24 months is the long-term threshold for US (“unlisted”) shares, not the 12 months that applies to Indian-listed stocks
- Remember the ₹1.25 lakh Section 112A exemption does not apply to US stock gains
- File Form 67 to claim the foreign tax credit for US withholding on dividends, using Form 1042-S as documentation
NRI investing in US stocks:
- Confirm LRS does not apply to you - fund your account from foreign income directly
- Determine whether any of your US investment income is India-source or remitted to India, which would bring it into Indian tax scope
- File W-8BEN the same as any other investor to claim the 25% DTAA rate
- If Indian tax applies to your situation, follow the same capital gains (unlisted-share, 24-month) and Form 67 rules as a resident
The Real Complexity Isn’t the Treaty
The DTAA itself is a single, fixed number - 25% on dividends, claimed with a W-8BEN, no further optimization available. What makes US investing genuinely complex from India is everything sitting on top of it: the LRS cap and TCS for residents (irrelevant for NRIs), the 24-month “unlisted shares” classification that catches investors used to the 12-month domestic rule, the missing ₹1.25 lakh exemption, and a Form 67 filing process that’s forgiving of late submission but not of skipping it entirely. Getting the resident-vs-NRI distinction right at the start determines which half of this guide actually applies to you.
General information on investing from India; your own circumstances need a professional’s eyes. Rates are based on the India-US Double Taxation Avoidance Agreement (1989) and Indian Income Tax Act provisions (Sections 112, 112A) as confirmed for FY 2026-27 in the Union Budget. LRS limits and TCS rates are set by the Reserve Bank of India and Indian tax law and can change. Always consult a qualified cross-border tax professional, particularly a chartered accountant familiar with NRI taxation, before you commit real money.
Sources: India-US Double Taxation Avoidance Agreement (1989); IRS Publication 515 (2026); RSM - Impact of India’s New Dividend Withholding Tax on US Investors; Winvesta, INDmoney, Zerodha Varsity, and Tax2win 2026 guides to US stock taxation for Indian investors; NoBroker, ClearTax, and IDFC FIRST Bank 2026 LRS guides; Bajaj Finserv LTCG Tax Rate FY 2026-27 guidance.
