DTAA: How to Avoid Double Tax on US Stocks

More and more Indian investors are exploring US markets. Big names like Apple, Microsoft and Tesla are no longer just global brands, they are also part of investment portfolios here. But while the opportunity is exciting, the taxation part often confuses investors. Income earned abroad can be taxed in the country where it is generated and again in the country where the investor lives. For Indians buying US stocks, this means dividends or interest may face tax in the US first and then in India too.

This is where the Double Taxation Avoidance Agreement (DTAA) comes in. Let’s look at what it is, how it works, and why it matters if you are investing in the US.

What is DTAA?

DTAA full form: Double Taxation Avoidance Agreement

It is a treaty that two countries sign so that people don’t end up paying tax twice on the same income. India has DTAA arrangements with over 85 countries, including the USA, UK, Singapore, UAE and Canada.

Put simply:

• Without DTAA: You pay tax both abroad and in India on the same income.
• With DTAA: You either get exemption in one country or claim credit for the tax already deducted.

Why is DTAA Important for US Stock Investors?

If you buy US-listed stocks from India, you usually make money in two ways:

1. Dividends (for example, from Microsoft or Apple shares)
2. Capital gains (profit when you sell your shares)

The US tax department withholds tax at source on dividends and some other income. Without DTAA, you would also pay full tax again in India. With DTAA, the tax already paid in the US is adjusted against your Indian liability.

Think of it like paying toll tax on a highway: if you’ve already paid once at the first booth (US), DTAA ensures you don’t get charged again at the second booth (India).

DTAA Between India and USA

Here’s how the India US DTAA applies on common types of income:

Source: Income Tax Department

A key advantage here is that capital gains on US stocks are not taxed in the US for non-residents. You only pay capital gains tax in India.

Example: How DTAA Saves You From Double Taxation

Assume you earn ₹1,00,000 in dividends from US shares.

• The US withholds 25% tax = ₹25,000.
• Your Indian tax slab rate is 30% (₹30,000).
• Under DTAA, you claim credit for ₹25,000 already paid.
• Net tax paid in India = ₹30,000 – ₹25,000 = ₹5,000.

So instead of paying ₹55,000 (US + India), your total outgo is only ₹30,000.

How to Claim DTAA Benefits in India

To use DTAA while filing your Indian income tax return, you need to follow a few steps:

• File Form 67 before submitting your ITR to show foreign tax paid.
• Obtain a Tax Residency Certificate (TRC) from Indian authorities. This confirms you are a tax resident of India.
• Report foreign income and taxes in Schedule FSI, Schedule FA, and Schedule TR of your ITR.
• Keep proof ready, such as broker statements showing tax deducted.

Benefits of DTAA for Investors

• No double taxation: You are not taxed twice on the same dividend or interest.
• Clarity for global investing: Knowing how taxes apply makes it easier to plan investments.
• Compliance made easier: Filing the right forms keeps you on the safe side of both tax authorities.
• Accurate tax planning: You know your net return after taxes more clearly.

Before DTAA vs After DTAA

Illustration: Dividend of ₹1,00,000 earned from US stocks. Rates assumed for clarity.

Takeaway: The India-US DTAA is one of the most important tools for Indians investing in American stocks. It prevents double taxation, cuts down on unnecessary tax outflow, and gives confidence to investors going global.

Disclaimer:

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