India-US DTAA for stock investors: dividends, capital gains, and Form 67 explained

The India-US Double Tax Avoidance Agreement (DTAA) is the 1989 treaty that governs cross-border taxation between the two countries. For Indian residents who hold US stocks through platforms like Vested, INDmoney, or Groww US, two articles matter most: Article 10 (dividends) and Article 13 (capital gains).

This guide focuses on the stock investor's use of the DTAA — what it does for your dividend tax bill, why capital gains aren't double-taxed, how to claim Foreign Tax Credit via Form 67, and what the treaty does not cover.

For the full treaty reference covering RSUs, pensions, cross-border salary, and Article 16 workday attribution, see the DTAA US-India complete guide.

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1. What the DTAA does (and doesn't do) for stock investors

The India-US DTAA has two core mechanisms: allocation of taxing rights and Foreign Tax Credit (FTC).

For stock investors specifically:

What the DTAA does:

• Caps US withholding tax on dividends at 25% (instead of the default 30%) for Indian residents who file W-8BEN
• Clarifies that India has primary taxing rights over capital gains on US stocks sold by Indian residents — meaning the US doesn't separately tax those gains
• Provides the legal basis for claiming FTC: US tax withheld on dividends can be credited against Indian tax on the same income

What the DTAA does not do:

• It does not exempt dividends from Indian tax — you still pay Indian tax on gross dividends, using FTC to offset the US amount withheld
• It does not reduce your Indian capital gains tax — India's full Section 112 rates apply
• It does not cover estate tax — a separate, significant exposure for Indian residents holding US stocks directly
• It does not eliminate disclosure obligations — Schedule FA in your ITR-2 still requires reporting all foreign assets

The treaty prevents the same income from being taxed fully by both countries. It does that through credit, not exemption. Understanding this distinction is the foundation for correct ITR filing.

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2. Dividends: 25% withholding, Form 1042-S, and the FTC claim

Why the rate is 25%, not 30%

The US default withholding tax on dividends paid to non-resident aliens (which Indian residents are, for US tax purposes) is 30%. Article 10 of the India-US DTAA reduces this to 25% for Indian residents. To access the reduced rate, you must file Form W-8BEN with your US broker — this certifies your Indian residency and invokes treaty benefits.

Without W-8BEN: 30% withheld on every dividend.
With W-8BEN: 25% withheld on every dividend.

For most Indian investors, the W-8BEN is filed as part of account opening on platforms like Vested. But W-8BEN expires every three years and must be renewed — if it lapses, the broker reverts to 30%.

What Form 1042-S tells you

At the end of each calendar year, your US broker (or the underlying custodian, typically DriveWealth or Interactive Brokers) issues Form 1042-S — the annual statement of US-source income paid to non-resident aliens. It shows:

• Gross dividend income for the year (Box 2)
• US tax withheld (Box 7)
• The income code and withholding rate

This form is your primary document for claiming FTC in India. Keep it alongside your brokerage transaction statement. Both are required when filing Form 67.

How to report dividends in India

Indian tax treatment of US dividends:

1. Convert to INR. Use the SBI telegraphic transfer buying rate (TTBR) on the date of each dividend receipt. For quarterly dividends, each payment is converted separately at its own rate.

2. Report gross dividend. In your ITR-2, US dividends go in Schedule OS (Income from Other Sources) at the full gross amount (before US withholding). Common error: reporting only the net amount received after withholding. This is wrong — you must gross up and then claim the withholding as FTC.

3. Indian tax on gross dividend. Taxed at your income tax slab rate (same as Indian dividends).

Worked example: the tax math

Assume: Indian investor in the 30% tax bracket. Receives a $100 gross dividend from a US ETF.

US side:

• Gross dividend: $100
• US withholding at 25% (W-8BEN filed): $25
• Net received in account: $75

India side (assuming INR 84 per USD for simplicity):

• Gross dividend in INR: $100 × 84 = Rs 8,400
• Indian tax at 30% slab: Rs 2,520
• FTC from US WHT: $25 × 84 = Rs 2,100
• Net Indian tax payable: Rs 2,520 − Rs 2,100 = Rs 420

Effective additional outflow on Rs 8,400 dividend:

• Already paid to US: Rs 2,100 (25%)
• Paying to India: Rs 420 (5%)
• Total tax: Rs 2,520 (30% of gross — which is exactly the Indian slab rate, as expected with full FTC)

Now the same example for an investor in a lower tax bracket (say, 20%):

• Indian tax at 20% slab: Rs 1,680
• FTC from US WHT: Rs 2,100
• FTC is capped at Indian tax on same income: Rs 1,680
• Excess US WHT (Rs 420) cannot be refunded or carried forward

Key insight for lower-bracket investors: if your Indian tax rate is below 25%, you cannot recover the full US withholding. The excess is lost. This is why dividend-heavy ETFs like SCHD or high-yield bond funds are tax-inefficient for Indian investors in lower tax brackets — the effective tax burden exceeds the Indian marginal rate.

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3. Capital gains: no US withholding, India's full right to tax

Article 13 in practice

Article 13 of the India-US DTAA allocates primary taxing rights over capital gains to the country of residence. For an Indian resident selling US stocks, that means India.

The result in practice: the US does not withhold tax on capital gains from US stock sales by Indian residents. This is reinforced by US domestic law — non-resident aliens are generally exempt from US tax on gains from US publicly traded stocks (IRC §871(h) and related provisions).

So when you sell Apple or an S&P 500 ETF:

• Zero US tax withheld
• No Form 1042-S entry for capital gains
• No Foreign Tax Credit claim needed
• India has the sole and full right to tax the gain

Indian capital gains rates for US stocks (post-Budget 2024)

Budget 2024 changed the holding period and rates for foreign equities:

Holding period	Classification	Indian tax rate
Less than 24 months	Short-term capital gain	Slab rate (up to 30%)
24 months or more	Long-term capital gain	12.5% (no indexation)

The 24-month threshold (not 12 months as for domestic listed equity) applies to US stocks because they are treated as unlisted securities for Indian tax purposes. This matters: a US stock held for 18 months is still short-term under Indian law.

Cost basis in INR: Use the SBI TTBR on the date of purchase to convert your cost in USD to INR. Use TTBR on the date of sale to convert sale proceeds. The gain is the INR difference — currency movement is embedded in the gain, not separately treated.

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4. The W-8BEN requirement: what it is and why it matters

Form W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding) is the IRS form that tells your US broker you are a non-US person and identifies your country of residence for treaty purposes.

Why it matters for DTAA:

• Without it: broker withholds at 30% default on all dividends
• With it: broker withholds at 25% DTAA rate for Indian residents
• It also certifies that you are not a US person for FATCA purposes

W-8BEN logistics:

• Filed with each US broker or custodian where you hold US stocks
• On most Indian platforms (Vested, INDmoney, Groww US), this is completed during account opening — you may not even see a separate form
• Valid for 3 calendar years after the year it is signed. A W-8BEN signed in 2024 is valid through December 31, 2027.
• Must be renewed before expiry — if it lapses, the broker reverts to 30% withholding with no retroactive correction
• If you change your address or become a US person, you must update or revoke W-8BEN immediately

Check your W-8BEN status before the end of each year. Most platforms show the expiry date in account settings.

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5. Form 67: the step most investors miss

What Form 67 is

Form 67 is the Indian income tax form for claiming Foreign Tax Credit under Section 90 of the Income-tax Act 1961, read with the India-US DTAA. For AY 2026-27 (FY 2025-26 income), it is Form 67. From AY 2027-28 onwards, it is replaced by Form 44 under the Income Tax Act 2025.

If you received US dividends and had US tax withheld, Form 67/44 is how you tell the Indian tax department about it and claim the credit.

The most critical procedural rule

Form 67 must be filed BEFORE you file your ITR-2. This changed for AY 2026-27. Previously, many taxpayers filed Form 67 after the ITR and the credit was still allowed. That no longer works. If you file ITR-2 first and Form 67 later, the FTC claim is not accepted.

Sequence for AY 2026-27:

1. File Form 67 on the income tax portal
2. File ITR-2 (referencing the Form 67 already on record)

Missing this sequence means losing your entire FTC claim — paying full Indian slab-rate tax on top of the 25% US withholding already deducted.

Documents required for Form 67

• Form 1042-S from your US broker or custodian — shows gross income and US tax withheld by income type
• Brokerage statement showing individual dividend payments and transaction dates
• Exchange rate documentation — SBI TTBR rates for each dividend date (printouts from SBI website or RBI reference rates are acceptable)

How Form 67 connects to ITR-2

Three schedules in ITR-2 interact with your Form 67 claim:

• Schedule FSI — lists each source of foreign income (each dividend, or aggregated by country), the foreign tax paid, and the income in INR
• Schedule TR — summarises total foreign tax credit claimed by country
• Schedule OS — reports the gross income from other sources (where US dividends land)

The numbers in Form 67, Schedule FSI, and Schedule TR must reconcile. A mismatch triggers a defective return notice.

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6. DTAA and the GIFT City route: an evolving picture

Some Indian investors hold US stocks through GIFT City IFSC entities — for example, Raise IFSC or the IFSC subsidiaries of platforms like INDmoney. This route uses a domestic Indian entity (though in the IFSC special economic zone) rather than a direct overseas brokerage account.

The India-US DTAA is a treaty between India and the US covering Indian tax residents. Whether and how it applies when the holding structure involves an IFSC entity (which is a domestic Indian entity for most purposes) is technically nuanced:

• Section 10(4D) of the Income-tax Act provides a tax exemption for certain income earned by IFSC securities entities. If this exemption applies to a specific income stream, there may be no Indian tax on that income — making DTAA FTC irrelevant (there is no Indian tax against which to credit US WHT).
• The interaction between Section 10(4D) exemption and DTAA FTC claims is an evolving area. CBDT has not issued comprehensive guidance specific to retail investors in GIFT City structures.
• US withholding at the entity level (on dividends flowing through the IFSC vehicle) may be governed by the US-India DTAA differently than direct individual holdings — the entity's tax status matters.

Practical guidance: If you hold US stocks through a GIFT City IFSC vehicle, consult a Chartered Accountant who specialises in IFSC structures before filing. Do not assume DTAA FTC mechanics that apply to direct holdings automatically apply to IFSC-routed holdings.

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7. What the DTAA does not cover: no estate tax treaty

The India-US DTAA is an income tax treaty. It governs income taxes — dividends, capital gains, salary, pensions. It says nothing about estate or inheritance taxes.

This matters because US estate tax applies to US situs assets held by non-resident aliens — which includes US stocks held directly in a US brokerage account by an Indian resident. The exemption for non-resident aliens is $60,000 (not the $13+ million available to US citizens and domiciliaries). Assets above that threshold face US estate tax at rates up to 40% on death.

The income tax DTAA provides no relief on this exposure. There is no separate US-India estate tax treaty.

Structures that address estate tax exposure (offshore holding through Mauritius or Singapore entities, exchange-traded products domiciled outside the US, ETFs domiciled in Ireland or Luxembourg) are outside the DTAA framework entirely and involve separate analysis.

For the full analysis of US estate tax for Indian investors, see US estate tax for Indian investors: complete guide.

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8. Practical checklist for every ITR season

Use this before each July 31 ITR-2 deadline:

Before the year ends (December/January):

• Verify W-8BEN is on file and not expired with your US broker or platform
• Note the expiry date; schedule renewal if it lapses before next March

After year-end, collecting documents (February–April):

• Download Form 1042-S from your US broker or custodian for the previous calendar year
• Download full transaction history / brokerage statement covering April–March (Indian FY)
• Note: 1042-S covers Jan–Dec (US calendar year); your Indian FY is April–March. Reconcile dividend dates carefully — dividends received in January–March 2025 fall in FY 2024-25 for India but appear on the 2024 Form 1042-S
• Collect SBI TTBR rates for each dividend record date (or use the nearest working day rate)

Filing Form 67 (May–June, before ITR-2):

• Log in to income tax portal (incometax.gov.in)
• File Form 67 — declare each dividend income line, US tax withheld, INR equivalent
• Attach Form 1042-S and brokerage statement as supporting documents
• Note the Form 67 acknowledgement number

Filing ITR-2 (by July 31):

• Schedule FSI — enter foreign income details (gross dividend in INR, US tax withheld in INR, net income)
• Schedule TR — enter total FTC claimed (should match Form 67 total)
• Schedule OS — report same gross dividend amount as income from other sources
• Verify all three schedules are internally consistent before submission

Capital gains:

• Schedule CG — enter each sale with purchase date, purchase price (in INR at buy-date TTBR), sale price (in INR at sale-date TTBR), and gain
• Classify as STCG (held less than 24 months) at slab rate or LTCG (24 months or more) at 12.5%
• No Form 67 needed for capital gains — there is no US tax to credit

Schedule FA (foreign asset disclosure):

• Disclose all US brokerage accounts under Schedule FA if you are a Resident and Ordinarily Resident (ROR)
• Report peak balance, closing balance, and income during the year
• DTAA does not reduce Schedule FA obligations

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The DTAA in plain terms: the three things to remember

For most Indian investors holding US stocks, the entire DTAA reduces to three practical rules:

1. Dividends: file W-8BEN so US withholds at 25% not 30%, report gross dividend in India, file Form 67 before your ITR, claim FTC. Net tax burden equals your Indian slab rate minus what the US already took.

2. Capital gains: no US tax, no FTC needed, pay India's full capital gains rate (slab for under 24 months, 12.5% for 24 months and above).

3. Form 67 first: always file Form 67 before ITR-2. This is the most common filing mistake and it costs real money.

The treaty is 30 articles long and covers RSUs, pensions, royalties, salaries, and real estate. For the typical Indian investor with a US ETF or stock portfolio, only Articles 10 and 13 matter — and the mechanics above cover both completely.

For RSU vesting, cross-border salary attribution, Traditional and Roth IRA treatment, and other DTAA applications: DTAA US-India complete guide.

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Vested.blog is the editorial publication of Rovia.