How to file your ITR for US stock investments through Zerodha?

When you invest in US stocks through Zerodha, you must report your capital gains, foreign dividends, Tax Collected at Source (TCS), and foreign holdings in your Income Tax Return (ITR). You must file ITR-2 (or ITR-3 if you have business or professional income) and disclose your foreign holdings in Schedule FA even if you made no sales or profit during the year.

Documents to collect before filing your ITR

Keep the following documents ready before you begin filing:

• Capital Gains Statement: Shows all buy and sell transactions, transaction dates, quantity, USD prices, and realised profit or loss.
• Annual holding statement as of 31 December: Displays the initial value, peak value during the calendar year, closing value on 31 December, and gross proceeds from any sales for Schedule FA reporting.
• Form 1042-S: The annual US tax statement provided by Zerodha showing gross dividend income paid and the 25% tax withheld in the US under the Double Taxation Avoidance Agreement (DTAA).
• Liberalised Remittance Scheme (LRS) bank advices and Form 27D: Remittance advices and TCS certificates issued by your bank for funds transferred to your Global wallet. Verify these amounts against your Annual Information Statement (AIS) and Form 26AS.
• State Bank of India (SBI) TT buying rates: The Telegraphic Transfer (TT) buying rates published by SBI for the last day of the month immediately preceding each transaction.

How to convert USD values to INR

Under Rule 115 of the Income Tax Rules, all transactions in foreign currency must be converted into Indian Rupees (INR) using the SBI TT buying rate published on the last day of the month immediately preceding the transaction month:

• For purchases: Use the SBI TT buying rate on the last day of the month before the purchase date to determine your acquisition cost.
• For sales: Use the SBI TT buying rate on the last day of the month before the sale date to determine your gross sale proceeds.
• For dividends: Use the SBI TT buying rate on the last day of the month before the dividend receipt date to calculate taxable dividend income.

Maintain an INR calculation sheet recording these exchange rates and converted values for every lot sold or dividend received.

Capital gains and dividend tax rules

• Holding period: US stocks and Exchange Traded Funds (ETFs) are classified as unlisted foreign securities for Indian tax purposes. Investments held for more than 24 months qualify as Long-Term Capital Gains (LTCG), while investments held for 24 months or less qualify as Short-Term Capital Gains (STCG).
• Long-Term Capital Gains (LTCG): Taxed at a flat rate of 12.5% plus applicable surcharge and a 4% Health and Education Cess. US stocks do not receive indexation benefits or the ₹1.25 lakh annual exemption available for Indian equities.
• Short-Term Capital Gains (STCG): Added to your total taxable income and taxed according to your applicable income tax slab rate, plus cess, plus surcharge.
• Dividend income: Taxed at your applicable income tax slab rates. Under the India-US DTAA, 25% tax is deducted at source in the US. You can claim this deduction as a Foreign Tax Credit (FTC) in India to avoid double taxation.

Where each item is reported in your ITR

Ensure you fill in the following schedules in ITR-2 or ITR-3:

• Schedule CG (Capital Gains): Enter the realised short-term or long-term capital gains converted to INR.
• Schedule OS (Income from Other Sources): Report gross foreign dividend income in INR before deducting the 25% US withholding tax.
• Schedule FSI (Foreign Source Income): Enter country code 2 (United States of America), your taxpayer identification number, and the respective income amounts under Capital Gains and Other Sources.
• Schedule TR (Tax Relief): Enter the Foreign Tax Credit claimed against the US dividend tax withheld. Ensure you file Form 67 on the Income Tax e-filing portal before submitting your ITR to substantiate this credit claim.
• Schedule FA (Foreign Assets): Disclose all US stocks, ETFs, and uninvested cash held in your Global wallet. Schedule FA operates strictly on the calendar year (1 January to 31 December). For example, while filing returns for Financial Year 2025–26, you must declare assets held between 1 January 2025 and 31 December 2025.
• Schedule AL (Assets and Liabilities): Complete this schedule if your total taxable income exceeds ₹1 crore.

If you require assistance with filing your Income Tax Return online, you can visit it.quicko.com

Things to keep in mind

• Schedule FA follows the calendar year (1 January to 31 December), whereas Schedule FSI follows the Indian financial year (1 April to 31 March). A numerical mismatch between the two schedules is expected, and you should preserve your calendar-to-financial year reconciliation sheet for your records.
• Failure to disclose foreign assets and cash balances in Schedule FA can attract penalties under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act.
• Your bank collects TCS at 20% on cumulative LRS remittances exceeding ₹10 lakh in a financial year. You can adjust this TCS against your advance tax and self-assessment tax liability or claim a refund when filing your return.
• You can set off short-term capital losses from US stocks against both short-term and long-term capital gains, while long-term capital losses can only be set off against long-term capital gains. Unadjusted capital losses can be carried forward for up to eight assessment years if you submit your ITR within the prescribed due date.
• If you trade frequently or intend to treat your overseas stock transactions as business income rather than capital gains, consult a Chartered Accountant (CA) to evaluate ITR-3 applicability and tax audit limits.
• For a detailed breakdown of everything from getting started and fund transfers to tax returns and compliance, refer to the complete guide for US investing in Zerodha.