Categorization of gains
The categorization of gains for tax purposes is based on the holding period of the asset by the investor.
In the case of foreign stocks (unlisted equity shares), if the holding period is up to 36 months, the
gains would be considered short-term capital gains, as per section 2(42A) of IT Act 1961, and if the
holding period is more than 36 months, the gains would be considered long-term capital gains.
For Indian stocks listed on Indian stock exchanges, the holding period is up to 12 months for short-term
capital gains, and if the holding period is more than 12 months, the gains would be considered long-term
capital gains
It's important to note that the tax rate for short-term capital gains is typically higher than the tax
rate for long-term capital gains.
Tax Implications of Gains from Unlisted foreign stock trading
In India, gains from foreign stock trading are subject to tax under the Income Tax Act, of 1961. The tax
implications for such transactions depend on whether the gains are considered short-term or long-term.
Short-term capital gains are taxed in accordance with the
applicable tax slab, which varies based on their total income for the year.
Long-term capital gains are taxed at a rate of 20% (plus
applicable surcharge and cess), with the benefit of indexation.
Indexation refers to adjusting the purchase price of the stocks for inflation, which helps to reduce the
amount of taxable gain.
The Indian taxation system of global mutual funds
In India, the taxation of global mutual funds depends on whether the fund is classified as an
equity-oriented fund or a non-equity-oriented fund.
Equity-oriented funds (international funds with more than a 65 percent exposure to Indian equity) are
those that invest primarily in equity shares of companies, and they are subject to a different tax
treatment than non-equity-oriented funds.
For equity-oriented global mutual funds, long-term capital gains (i.e., gains realized after holding the
investment for more than one year) are taxed at a rate of 10% without indexation,or 20% with indexation,
whichever is lower. Short-term capital gains (i.e., gains realized within one year of purchase) are
taxed at the rate of 15%.
For non-equity-oriented (international funds with less than a 65 percent exposure to Indian equity)
global mutual funds, long-term capital gains are taxed at a rate of 20% with indexation, and short-term
capital gains are taxed at the investor's applicable income tax rate.
Compliance Requirements For Foreign Stock Trading
The Black Money (Undisclosed Foreign Income and Assets) And Imposition of Tax Act, 2015 is an Indian law
that aims to tackle black money stashed abroad. Under this law, Indian residents are required to
disclose all their foreign assets and income in their tax returns, failing which they may face penalties
and prosecution.
The Schedule FA is a part of the Indian income tax return, where taxpayers are required to provide
details of their foreign assets and income. If a taxpayer has failed to disclose a foreign asset in the
past, they may face a penalty of INR 10 lakh under the BMA. In addition, the tax department may treat
the income tax return as a defective return under Section 139(9) and issue a notice to the taxpayer. It
is, therefore, crucial for taxpayers with foreign investments or signatories in foreign accounts to
disclose all the necessary details in Schedule FA of their income tax return.
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