NEW DELHI: Diversification is an important aspect of investment, and this must be across asset classes, sectors, geographies, among others. In order to achieve geographical diversification, people invest in stocks of foreign companies listed on foreign stock exchanges.
However, you need to understand the tax aspect of investing in foreign stocks as they are treated as equity investments. Investing in foreign stocks are treated as investment in unlisted shares. Accordingly, depending on the holding period of investment, gains will be treated as long-term or short-term. “If shares of foreign company are held for a period not more than 24 months immediately preceding the date of transfer then it will be treated as short-term capital gain otherwise long-term capital gain. However, if such shares are listed on any Indian stock exchange, then such period would be 12 months instead of 24 months,” said Kapil Rana, founder and chairman, HostBooks Limited.
Long term capital gains arising from sale of foreign stocks attract tax at the rate of 20% plus surcharge and health and education cess along with benefit of indexation. Short-term capital gain arising from the sale of foreign shares are taxed at the slab rate applicable to taxpayer.
Therefore, if you are investing in foreign stocks be mindful of taxes to be paid as your actual returns will be return from the stock minus taxes. Plus, in case of investing in foreign companies you will also have to bear the currency fluctuation as the money will be converted in dollars before being invested.