Foreign Shares Taxation 2026: US, South Korea & Taiwan Stocks

Priya, a 32-year-old software engineer in Bangalore, invested ₹5,00,000 in Apple and Samsung Electronics shares through an international investing app in 2024. When she received her first dividend in 2025, she discovered that 25% was already withheld as US tax. Then, while filing her ITR for FY 2025-26, she learned that foreign shares have completely different tax rules than Indian stocks—no ₹1.25 lakh LTCG exemption, a 24-month holding period, and mandatory Schedule FA disclosure. This guide explains exactly how US, South Korean, and Taiwanese shares are taxed in India for FY 2026-27, based on the latest CBDT regulations and Finance Act 2026 provisions.

Understanding Foreign Shares Taxation Framework in India

Foreign shares purchased from US exchanges (NASDAQ, NYSE), South Korean exchanges (KRX), or Taiwanese exchanges (TWSE) are treated fundamentally differently from Indian listed equity under the Income Tax Act, 1961. These shares are treated as unlisted/foreign shares for Indian tax purposes—not listed on an Indian exchange, with no STT paid, putting them under Section 112 with a 24-month holding-period threshold. This classification has major implications for tax rates, exemptions, and reporting requirements.

The CBDT Order dated 8 July 2026 mandates that foreign financial information received by the Income Tax Department from more than 100 countries will be uploaded in the taxpayer's own Annual Information Statement (AIS) in Form 26AS, making foreign shareholding, dividends, and foreign bank accounts visible to taxpayers and increasing compliance transparency.

Why Foreign Shares Are Treated as Unlisted Securities

The key distinguishing factor is Securities Transaction Tax (STT). Indian listed shares traded on BSE or NSE attract STT, which qualifies them for concessional tax treatment under Section 111A (STCG) and Section 112A (LTCG). Foreign shares purchased through international brokers or investment platforms do not involve STT payment, automatically disqualifying them from these special sections. Consequently, they fall under the general capital gains provisions—Section 112 for long-term gains and normal slab-rate taxation for short-term gains.

Capital Gains Taxation on US, South Korea and Taiwan Stocks

Long-Term Capital Gains (LTCG) Tax: 24-Month Holding Period

For unlisted company shares held for more than 24 months after exercise, the gain is taxed as LTCG at 12.5%. Budget 2024 reduced the LTCG rate from 20% (which had included an indexation benefit) to 12.5% without indexation. LTCG is taxed at a flat 12.5% under Section 112 (Finance Act 2024) with no indexation benefit.

Critical differences from Indian listed shares:

• No ₹1.25 lakh annual exemption: The ₹1.25 lakh LTCG exemption applies only to Section 112A assets—Indian-listed equity and equity mutual funds where STT is paid. It does not apply to US/foreign shares. Your foreign-share LTCG is taxable from the first rupee at 12.5%.
• 24-month threshold: Unlike the 12-month holding period for Indian listed equity, foreign shares require 24 months of holding to qualify as long-term.
• No indexation benefit: The cost of acquisition is not adjusted for inflation using Cost Inflation Index (CII).
• Surcharge cap: Surcharge on LTCG under Section 112—where foreign shares fall—is capped at 15%, even at higher income, plus 4% health and education cess.

Example: Rajesh bought Tesla shares worth $10,000 (₹8,50,000 at ₹85/$) on 1 March 2023. He sold them on 15 April 2025 for $15,000 (₹12,60,000 at ₹84/$). Holding period: Over 24 months (LTCG applies). Capital gain: ₹12,60,000 - ₹8,50,000 = ₹4,10,000. Tax: ₹4,10,000 × 12.5% = ₹51,250 (plus applicable surcharge and cess). No ₹1.25 lakh exemption available. Calculate your exact liability using the Capital Gain Calculator.

Short-Term Capital Gains (STCG) Tax: Slab Rate Taxation

STCG on unlisted shares is taxed at the seller's applicable income tax slab rate. There is no flat rate for short-term gains on unlisted equity. The gain is added to the seller's total income for the year and taxed at the slab rates applicable to that combined income.

For FY 2025-26 (AY 2026-27), the slab rates under the new tax regime are:

• ₹0 - ₹4,00,000: Nil
• ₹4,00,001 - ₹8,00,000: 5%
• ₹8,00,001 - ₹12,00,000: 10%
• ₹12,00,001 - ₹16,00,000: 15%
• ₹16,00,001 - ₹20,00,000: 20%
• ₹20,00,001 - ₹24,00,000: 25%
• Above ₹24,00,000: 30%

Example: Meera bought Samsung Electronics shares for ₹3,00,000 in June 2024 and sold them for ₹4,50,000 in December 2025. Holding period: 18 months (STCG applies). Capital gain: ₹1,50,000. This ₹1,50,000 is added to her salary income and taxed at her marginal slab rate. If her total income including this gain falls in the 30% bracket, tax would be ₹45,000 plus surcharge and cess. Use the Income Tax Calculator to determine your total tax liability including capital gains.

Currency Conversion Rules for Capital Gains Calculation

Convert your purchase price to INR using the SBI Telegraphic Transfer Buying Rate (TTBR) on the date of purchase. Convert your sale price to INR using the TTBR on the date of sale. The difference between these two INR amounts is your capital gain. Currency fluctuations can increase or decrease your taxable gain independent of the stock's actual dollar performance.

Dividend Taxation on Foreign Stocks

Dividends from US stocks trigger tax in both countries. This makes them the most complex piece of cross-border investing for Indian residents. Dividends from US, South Korean, and Taiwanese companies are taxed under the head 'Income from Other Sources' in your ITR.

Tax Treatment in India

India taxes the gross dividend at your slab rate: 5% to 30% under the new tax regime, 0% to 30% under the old. The dividend amount must be converted to INR using the SBI TT buying rate as on the last day of the month before you received the dividend.

US Dividend Withholding Tax: 25% for Retail Investors

The popular claim that DTAA cuts US withholding to 15% is wrong for almost every retail investor—the real rate is 25%. Under the India-US Double Taxation Avoidance Agreement (DTAA), dividends are generally subject to a 25% withholding tax in the US. When you file Form W-8BEN with your US broker, this 25% withholding applies.

Example: Suresh receives $2,000 dividend from Microsoft. US withholding: $500 (25%). Net received: $1,500. At exchange rate ₹85/$, gross dividend in INR: ₹1,70,000. US tax paid in INR: ₹42,500. Suresh's total income: ₹28 lakh (30% slab). Indian tax on dividend: ₹1,70,000 × 30% = ₹51,000. Foreign Tax Credit claimable: ₹42,500 (lower of foreign tax paid or Indian tax due). Net additional Indian tax payable: ₹51,000 - ₹42,500 = ₹8,500.

Claiming Foreign Tax Credit (FTC) via Form 67

File Form 67 online on the Income Tax portal before filing ITR. Claim FTC in Schedule FSI and Schedule TR in your ITR-2 or ITR-3. Attach foreign tax payment proof and TDS certificates from foreign entities. Claiming the FTC requires Form 67. You must file this form electronically on the income tax portal. Access your TDS information using the Form 26AS / TDS Fetch Tool to ensure all credits are properly reflected.

Double Taxation Avoidance Agreements (DTAA) Impact

India-US DTAA

Taxes on capital gains from US stocks for Indian residents are only taxed in India and not in the US. This is because of the taxation treaty between the two countries. The India-US Double Taxation Avoidance Agreement (DTAA) helps Indian investors avoid double taxation and hence pay taxes only in India. For capital gains, Article 13 allows each country to tax them in accordance with its domestic law. Since US law exempts non-residents from stock sale gains, only India taxes your profits.

India-South Korea DTAA

The union cabinet approved revision of the Double Taxation Avoidance Agreement (DTAA), which was signed in 1985 between India and South Korea. The revised DTAA provides for source-based taxation of capital gains, provisions for making adjustments to profits of associated enterprises on the basis of arm's length principle, and rationalizes tax rates in the articles on dividend, interest and royalties and fees for technical services. Under DTAA between India and Korea, the fees for technical services originating in India and paid to a South Korean resident are taxed in India at up to 10% rate of the gross amount of fees.

India-Taiwan Investment Agreement

This declaration is made with a view to attract and encourage investments by investors from Taiwan into India. Investment of investors of one territory in the other territory and the returns thereon shall at all times be accorded fair and equitable treatment and full protection. While India does not have a formal DTAA with Taiwan (due to diplomatic considerations), bilateral investment agreements provide protection and fair treatment for cross-border investments.

Schedule FA: Mandatory Foreign Assets Disclosure

If you have invested in foreign assets, you need to report that in Schedule FA of the ITR, provided your residential status is 'resident and ordinarily resident (ROR)'. Schedule FA is not optional—it's a legal requirement under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

Who Must File Schedule FA?

Mandatory for all Resident and Ordinarily Resident (ROR) taxpayers. Non-resident Indians and resident but not ordinarily resident individuals are exempt. If you have foreign assets and you're filing ITR-1 (Sahaj) or ITR-4 (Sugam), you're already off track. Those forms simply don't have Schedule FA, Schedule FSI, or Schedule TR. You must use ITR-2 or ITR-3.

Calendar Year Reporting: January to December

Schedule FA uses the calendar year (January 1 to December 31), not India's April–March financial year. For ITR AY 2026-27, you report foreign assets as they stood during January 1 – December 31, 2025. For ITR filing for AY 2026-27, you need to report assets held between April 1, 2025 to 31st March 2026. Since most countries follow a calendar year, even assets purchased till 31st March 2025 must be declared in Schedule FA.

What to Report in Schedule FA

You must report foreign investments and stocks in Table A3 of Schedule FA in your ITR. Required details include:

• Name of the country and country code
• Name and address of the entity/company
• Nature of asset (equity shares)
• Date of acquisition
• Peak balance/value during the year in foreign currency
• Peak balance converted to INR
• Closing balance as on December 31
• Income earned from the asset during the year

Convert the value of all foreign assets into Indian Rupees before reporting. Verify your foreign income reporting using the Bank Statement Analyser to ensure all inward remittances and dividend credits are properly accounted for.

Penalties for Non-Disclosure

Section 43 of the Black Money Act states that if you fail to provide information in your income tax return or give incorrect details about an asset located outside India, you could face a penalty of Rs 10 lakh. This applies whether you own the asset directly or are a beneficiary of it. The penalty under this Section won't apply to asset/s (other than immovable property) that have a total value of Rs 20 lakh at any point during the relevant year.

ITR Filing Process for Foreign Shares in FY 2026-27

Choose the Correct ITR Form

ITR-2 is applicable for individuals and HUFs with capital gains and foreign assets. ITR-3 is required if you have business or professional income in addition to foreign shareholding. Never use ITR-1 if you hold foreign shares, as it lacks Schedule FA, FSI, and TR.

Step-by-Step Reporting

1. Report capital gains: LTCG from foreign shares (24+ months holding) is reported in Section B9 of Schedule CG (Capital Gains) under Section 112. STCG from foreign shares (under 24 months) is reported in Section A5 and flows to your total income calculation. Use the Stock Profit Calculator to accurately calculate your gains before ITR filing.

2. Report dividend income: Dividends are reported under Schedule OS (Income from Other Sources) with gross amount in INR. Mark the income as 'foreign source' and specify the country code.

3. File Form 67 first: If you paid foreign taxes, file Form 67 separately before or simultaneously with ITR filing. Upload proof of foreign tax payment (1042-S form from US brokers, dividend vouchers, broker statements).

4. Complete Schedule FA: Report all foreign shareholdings in Table A3, even if no income was earned or shares were sold during the year.

5. Complete Schedule FSI: Report all foreign-source income (dividends, capital gains) with country-wise breakup.

6. Complete Schedule TR: Claim Foreign Tax Credit for taxes paid abroad. The credit is limited to the lower of foreign tax paid or Indian tax payable on that income.

The due date for ITR-2/ITR-3 for AY 2026-27 is 31st July 2026 for non-audit cases. Ensure you verify within 30 days using Aadhaar OTP, net banking, or sending signed physical copy to CPC Bengaluru.

Tax Comparison: Foreign Shares vs Indian Listed Shares

Parameter	Foreign Shares (US, Korea, Taiwan)	Indian Listed Shares
Holding Period (LTCG)	More than 24 months	More than 12 months
LTCG Tax Rate	12.5% (Section 112)	12.5% (Section 112A)
LTCG Exemption	Nil (taxable from first rupee)	₹1.25 lakh per year
STCG Tax Rate	Slab rate (up to 30%)	20% flat (Section 111A)
Indexation Benefit	Not available	Not available
Schedule FA Disclosure	Mandatory (Table A3)	Not required
Dividend Tax	Slab rate + foreign withholding	Slab rate (no withholding)
STT Applicable	No	Yes
TCS on Investment	20% on amounts above ₹7 lakh/year (LRS)	Not applicable

Recent CBDT Circulars and Compliance Updates for 2026

CBDT Circular 03/2026 (March 2026): Directed Assessing Officers to mandatorily verify Schedule FA disclosures against AEOI data received from foreign tax authorities. Mismatches trigger automatic scrutiny. CBDT Instruction 02/2026 (February 2026): Specified that crypto exchange data sharing is now real-time. All exchanges operating in India must report transactions monthly to Income Tax Department.

Introduction of a one-time 6-month foreign asset disclosure scheme for small taxpayers with low-value foreign assets. Immunity from prosecution (retrospective from 1 October 2024) for non-disclosure of non-immovable foreign assets with total value below ₹20 lakh, subject to conditions.

TCS on Foreign Remittances Under LRS

For investing in US stocks, TCS of 20% applies on amounts above ₹7 lakh per year. TCS is not a final tax: it is an advance collection, claimable as credit when you file your ITR. This Tax Collected at Source under the Liberalised Remittance Scheme (LRS) increases the upfront cost of foreign investments but is fully adjustable against your final tax liability.

Common Mistakes to Avoid

• Using ITR-1: ITR-1 cannot accommodate Schedule FA. Using it when you hold foreign shares constitutes an automatic reporting default.
• Applying Section 87A rebate: The rebate does not apply to capital gains taxed under Section 112 or income taxed at special rates.
• Missing Form 67: Filing ITR without first submitting Form 67 means losing your Foreign Tax Credit claim.
• Wrong exchange rate: Using random exchange rates instead of SBI TT buying rate can invalidate your capital gains calculation.
• Calendar vs financial year confusion: Schedule FA follows calendar year (Jan-Dec), not financial year (Apr-Mar).
• Assuming 12-month holding period: Foreign shares require 24 months for LTCG qualification, not 12 months.
• Not disclosing zero-income assets: Even dormant foreign accounts or shares that earned no income must be disclosed.

Frequently Asked Questions

What is the tax rate on foreign shares from US, South Korea and Taiwan in India for FY 2026-27?

Foreign shares from US, South Korea and Taiwan are treated as unlisted/foreign securities under Section 112 of the Income Tax Act. Long-term capital gains (holding period over 24 months) are taxed at a flat 12.5% without indexation benefit and without the ₹1.25 lakh exemption that applies to Indian listed shares. Short-term capital gains (holding 24 months or less) are added to your total income and taxed at your applicable income tax slab rate, which can go up to 30% plus surcharge and cess. There is no STT paid on foreign shares, so Section 111A and 112A do not apply.

How are dividends from US, South Korean and Taiwan stocks taxed in India?

Dividends from foreign stocks are taxed as 'Income from Other Sources' at your applicable slab rate (5% to 30% under new regime, 0% to 30% under old regime). The US withholds 25% tax on dividends for retail Indian investors who file Form W-8BEN. South Korea's DTAA provides similar withholding provisions. You can claim Foreign Tax Credit (FTC) for taxes paid abroad by filing Form 67 online before or during ITR filing. The credit is reported in Schedule FSI and Schedule TR of ITR-2 or ITR-3. FTC cannot exceed the Indian tax payable on that dividend income.

Is Schedule FA disclosure mandatory for US, South Korea and Taiwan stocks?

Yes, Schedule FA disclosure is mandatory for all Resident and Ordinarily Resident (ROR) individuals holding foreign shares at any time during the calendar year. You must report foreign stocks in Table A3 of Schedule FA in ITR-2 or ITR-3. Schedule FA follows the calendar year (January to December), not the Indian financial year. For AY 2026-27, report assets held between January 1, 2025 to December 31, 2025. Non-disclosure attracts a penalty of ₹10 lakh under Section 43 of the Black Money Act, 2015, unless total value of foreign assets (excluding immovable property) is below ₹20 lakh. The CBDT Order dated 8 July 2026 now displays foreign shareholding information directly in your AIS (Annual Information Statement).

What is the holding period for foreign shares to qualify as long-term capital gains?

Foreign shares from US, South Korea, Taiwan and other countries have a 24-month holding period threshold to qualify as long-term capital gains, not the 12-month threshold that applies to Indian listed shares. This is because foreign shares are treated as unlisted securities for Indian tax purposes since no Securities Transaction Tax (STT) is paid on them and they are not traded on Indian exchanges. If you hold foreign shares for more than 24 months, gains are taxed as LTCG at 12.5% under Section 112. If held for 24 months or less, gains are taxed as STCG at your slab rate.

How does the India-US, India-South Korea and India-Taiwan DTAA affect taxation?

The Double Taxation Avoidance Agreement (DTAA) between India and these countries helps prevent double taxation. Under the India-US DTAA Article 13, capital gains on stock sales are taxed only in India, not in the US, so there is no double taxation on capital gains. India has a revised DTAA with South Korea (approved in 2015) that provides source-based taxation of capital gains and rationalized tax rates on dividends, interest, royalties and fees for technical services. For Taiwan, India has a bilateral investment promotion agreement. The DTAA is most relevant for dividend taxation, where foreign withholding tax can be claimed as Foreign Tax Credit in India via Form 67, reducing your overall tax burden.

Conclusion

Investing in foreign shares from US, South Korea, and Taiwan offers portfolio diversification, but comes with distinct tax obligations under Indian law. Understanding the 24-month LTCG threshold, 12.5% flat tax rate without exemption, slab-rate STCG taxation, mandatory Schedule FA disclosure, and DTAA relief mechanisms is crucial for compliant ITR filing for FY 2026-27. With the CBDT's July 2026 order now displaying foreign assets directly in your AIS, transparency has increased significantly, making accurate reporting more important than ever. Non-compliance can attract penalties up to ₹10 lakh under the Black Money Act. File your ITR correctly using ITR-2 or ITR-3, complete Schedule FA with calendar-year data, claim Foreign Tax Credit via Form 67 for dividend withholding taxes, and ensure capital gains are calculated using correct SBI TT exchange rates. Simplify your tax compliance journey with TaxFetch's comprehensive suite of tax tools designed specifically for Indian taxpayers with domestic and international investments.