Tax impact of shares and options
This query is : Resolved
02 August 2009
What is the tax impact of shares n options traded on a stock exchange in U.S.A.?
should double tax avoidation agreement be taken into consideration while calculating capital gains on such shares n options?
should double tax avoidation agreement be taken into consideration while calculating capital gains on such shares n options?
02 August 2009
DTAA is applied in respect of any payment made to a non resident and to check the rates of withholding tax.
02 August 2009
Is DTAA applicable to an assessee who is a resident indian who has traded in shares and options on a recognised stock exchange in usa?
03 August 2009
Section 90 speaks about the agreement entered by the Central Government with the government of any country outside India to give tax releif to those assessees who have been charged Tax in both the countries. The residential status of the assessee is not the question. If an income is charged to tax in the country other than India as well as in INdia then DTAA will come into picture.
08 October 2009
Should cost of transfer like withdrawl tax, commission be deducted while calculating STCG/LTCG
26 July 2025
Here’s a clear explanation about the tax impact of shares and options traded on a U.S. stock exchange for an Indian resident, and the role of the DTAA:
---
### 1. **Tax Impact of Shares & Options Traded on U.S. Stock Exchange for an Indian Resident**
* **Capital Gains Tax in India**:
If you are a **resident Indian taxpayer**, gains from trading shares and options on any recognized stock exchange globally (including the U.S.) are taxable in India under the head **Capital Gains**.
* **Short Term Capital Gains (STCG) vs Long Term Capital Gains (LTCG)**:
* Shares held **less than 12 months** before sale: STCG
* Shares held **more than 12 months** before sale: LTCG
(For listed securities, LTCG exceeding Rs. 1 lakh is taxable at 10%, STCG taxed at 15%, but you should verify the latest rates as tax laws change.)
* **Deductible Expenses**:
You can deduct **cost of transfer** (brokerage commission, transaction charges, withdrawal fees) while computing the capital gains.
So, expenses like withdrawal tax, brokerage commission, and other directly related costs reduce your taxable gain.
---
### 2. **Double Tax Avoidance Agreement (DTAA) Applicability**
* The DTAA applies primarily when the same income is **taxed in both India and the other country** (in this case, the U.S.).
* For an **Indian resident taxpayer**, capital gains on sale of shares/options traded on the U.S. stock exchange are taxable **only in India**, unless:
* You have a **permanent establishment** or business connection in the U.S.
* The gains are connected to a business or fixed base in the U.S.
* Therefore, **DTAA is generally not applicable for capital gains from shares/options trading on the U.S. stock market for an Indian resident** if these gains are not taxable in the U.S.
* If you have paid any tax in the U.S. on these gains, then you can claim **foreign tax credit** in India under DTAA (Section 90 of the Income Tax Act).
---
### 3. **Summary**
| Aspect | Indian Resident Tax Treatment | DTAA Role |
| ------------------------- | ------------------------------------------------- | ------------------------------------ |
| Shares/Options Gains | Taxable as capital gains in India | Applicable if tax is paid in U.S. |
| Cost of transfer expenses | Deductible while computing capital gains | N/A |
| Tax paid in U.S. | Foreign tax credit claimable under DTAA | Yes, if tax actually paid |
| Indian resident status | Gains taxable in India regardless of where traded | DTAA provides relief if double taxed |
---
### 4. **Additional Points**
* You need to maintain proper documents like purchase & sale invoices, brokerage statements, proof of expenses, and any tax paid abroad.
* The definition of **recognized stock exchange** for Indian tax purposes includes foreign stock exchanges.
---
If you want, I can help draft an example calculation for your capital gains or provide details on how to claim foreign tax credit under DTAA. Would you like that?
---
### 1. **Tax Impact of Shares & Options Traded on U.S. Stock Exchange for an Indian Resident**
* **Capital Gains Tax in India**:
If you are a **resident Indian taxpayer**, gains from trading shares and options on any recognized stock exchange globally (including the U.S.) are taxable in India under the head **Capital Gains**.
* **Short Term Capital Gains (STCG) vs Long Term Capital Gains (LTCG)**:
* Shares held **less than 12 months** before sale: STCG
* Shares held **more than 12 months** before sale: LTCG
(For listed securities, LTCG exceeding Rs. 1 lakh is taxable at 10%, STCG taxed at 15%, but you should verify the latest rates as tax laws change.)
* **Deductible Expenses**:
You can deduct **cost of transfer** (brokerage commission, transaction charges, withdrawal fees) while computing the capital gains.
So, expenses like withdrawal tax, brokerage commission, and other directly related costs reduce your taxable gain.
---
### 2. **Double Tax Avoidance Agreement (DTAA) Applicability**
* The DTAA applies primarily when the same income is **taxed in both India and the other country** (in this case, the U.S.).
* For an **Indian resident taxpayer**, capital gains on sale of shares/options traded on the U.S. stock exchange are taxable **only in India**, unless:
* You have a **permanent establishment** or business connection in the U.S.
* The gains are connected to a business or fixed base in the U.S.
* Therefore, **DTAA is generally not applicable for capital gains from shares/options trading on the U.S. stock market for an Indian resident** if these gains are not taxable in the U.S.
* If you have paid any tax in the U.S. on these gains, then you can claim **foreign tax credit** in India under DTAA (Section 90 of the Income Tax Act).
---
### 3. **Summary**
| Aspect | Indian Resident Tax Treatment | DTAA Role |
| ------------------------- | ------------------------------------------------- | ------------------------------------ |
| Shares/Options Gains | Taxable as capital gains in India | Applicable if tax is paid in U.S. |
| Cost of transfer expenses | Deductible while computing capital gains | N/A |
| Tax paid in U.S. | Foreign tax credit claimable under DTAA | Yes, if tax actually paid |
| Indian resident status | Gains taxable in India regardless of where traded | DTAA provides relief if double taxed |
---
### 4. **Additional Points**
* You need to maintain proper documents like purchase & sale invoices, brokerage statements, proof of expenses, and any tax paid abroad.
* The definition of **recognized stock exchange** for Indian tax purposes includes foreign stock exchanges.
---
If you want, I can help draft an example calculation for your capital gains or provide details on how to claim foreign tax credit under DTAA. Would you like that?
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