How does the 20% TCS and US taxation work if I invest Rs 15L in the S&P 500?

Question

I want to invest Rs 15L lump sum into US equities this year. I am confused about the 20% TCS rule and double taxation on dividends. Will I lose 20% of my capital upfront?

Sachin Kabra · Accepted Answer

The 20% TCS on foreign remittances is not a sunk cost and can be fully adjusted against your overall tax liability when filing your ITR. When you remit money to the US for investment you are subject to TCS under the LRS rules. However investments up to Rs 10L per financial year do not attract any TCS at all. Since you plan to invest Rs 15L only the amount exceeding that Rs 10L threshold will face the 20% deduction. You also need to understand how capital gains and dividends are taxed. If you sell your US stocks after holding them for more than 24mo the gains are considered LTCG and taxed at 12.5% without indexation benefits. If you sell before 24mo it is STCG and added to your taxable income. Dividend taxation is a bit more complex because of withholding taxes. When US companies pay dividends the US government deducts a 25% withholding tax at the source. If you earn $10 in dividends about $2.50 is withheld and $7.50 hits your account. In India that full $10 is considered taxable income and taxed at your slab rate. To prevent double taxation the Indian government allows you to claim a credit for the 25% already paid in the US so you only pay the remaining differential. Disclaimer: All information shared above are strictly for educational and informational purposes only. It should not be construed as financial or investment advice.

How does the 20% TCS and US taxation work if I invest Rs 15L in the S&P 500?

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