Clarification on Taxation of Capital Gains on Foreign ETF

• These ETFs are classified as "foreign asset" or international funds. The holding period for LTCG is 24 months or more.

• LTCG on foreign ETFs for FY 2025-26 is taxed at a flat 12.5% without indexation, as per Section 112 of the Income Tax Act.

• The Rs 1.25 lakh LTCG exemption does not apply to foreign ETF gains; it only applies to domestic equity-oriented assets under Section 112A.

• If the ETF units are sold before 24 months, gains are considered short-term and taxed as per the income tax slab rate.

Foreign ETFs are treated as foreign securities, not Indian equity mutual funds, so different rules apply. The long-term holding period for listed foreign securities is 24 months (not 12 months), and LTCG is taxed at 12.5% without indexation for assets sold after July 23, 2024. Short-term gains are added to your total income and taxed at your applicable slab rate. These go in Schedule CG of ITR-2 under the foreign asset rows, separate from Indian equity gains.

You also need to disclose the holdings in Schedule FA if the value exceeds the reporting threshold, and Schedule FSI if you are claiming a DTAA credit on taxes already paid in the country of the ETF. This [capital gains tax guide for AY 2026-27](https://taxgarden.in/blog/capital-gains-tax-india-ltcg-stcg-ay-2026-27) has the updated classification rules and the July 2024 grandfathering provisions.

Foreign ETFs are considered non-equity mutual funds/debt fund and are, in general, taxed in India as such. So the taxation will differ from Indian equity funds. 

Simple breakdown:

•  If the property is held for less than 24 months, it is considered a short term capital gain (STCG).
    Taxed as per your income tax slab.
•  Holding period of over 24 months is termed as Long Term Capital Gain (LTCG).
    The rate of taxation is 12.5% without indexation (as per the last rules).

Also remember:

 Dividend income received from foreign ETFs will be classified as “Income from Other Sources”.
 If the tax was withheld in a foreign country, foreign tax credit might be available.

Then proper records of the purchase date, exchange rate and sale value should be kept to ensure the accuracy of the calculation.