LTCG Tax Rules 2026: Do US Stocks Qualify for ₹1.25 Lakh Tax Exemption? Check Foreign Share Tax Rates

LTCG Tax on Foreign Stocks 2026: Indian investors putting money into US stocks and international equity markets need to understand an important difference in capital gains taxation. While eligible Indian equity investments can benefit from an annual long-term capital gains (LTCG) threshold of ₹1.25 lakh, the same benefit generally does not apply to profits earned from shares listed on foreign stock exchanges.

With discussions surrounding possible changes to capital gains tax and Securities Transaction Tax (STT) ahead of Budget 2027, investors are paying closer attention to the tax treatment of domestic and overseas investments.

A common misunderstanding is that any long-term investment profit below ₹1.25 lakh is automatically exempt from tax. However, Indian income tax provisions distinguish between different asset classes, and foreign shares are generally taxed differently from eligible domestic listed equities.

For investors holding shares of American companies or other international businesses, understanding these rules is essential before calculating returns or filing income tax returns.

Is the ₹1.25 Lakh LTCG Exemption Available on US Stocks?

The ₹1.25 lakh annual threshold applies to specified long-term capital gains that satisfy the relevant statutory conditions.

Under the Income-tax Act, 2025, Section 198 provides the special tax treatment for qualifying equity-related capital gains, broadly corresponding to the earlier Section 112A framework.

Eligible investments generally include specified equity shares, equity-oriented mutual fund units and business trust units, subject to the applicable Securities Transaction Tax requirements and statutory exceptions.

Shares purchased directly on foreign stock exchanges, including US markets, ordinarily do not meet these conditions.

Therefore, profits from selling foreign shares cannot automatically receive the ₹1.25 lakh threshold merely because the investment has been held for a long period.

How Much LTCG Tax Applies to Foreign Shares?

For an Indian resident investor, long-term capital gains from foreign shares are generally subject to a tax rate of 12.5%, without indexation, under the applicable capital gains provisions.

The relevant provisions are contained in Section 197 of the Income-tax Act, 2025, broadly corresponding to the earlier Section 112 framework.

Applicable surcharge and health and education cess may increase the final tax liability.

Importantly, the special ₹1.25 lakh annual threshold available for qualifying equity gains does not ordinarily reduce taxable long-term profits from foreign shares.

Example: Tax on ₹1 Lakh Profit From US Stocks

Suppose an Indian resident sells shares of a US-listed company after holding them for more than 24 months.

The investment generates a long-term capital gain of ₹1,00,000.

Assuming the standard 12.5% LTCG rate applies:

This example excludes surcharge, eligible adjustments, basic exemption limit considerations and any available foreign tax credit.

It demonstrates that a ₹1 lakh profit from US shares does not automatically become tax-free simply because the gain is below ₹1.25 lakh.

Foreign Stocks LTCG and STCG: What Is the Holding Period?

The holding period plays an important role in determining whether profits from foreign shares are treated as short-term or long-term capital gains.

For the foreign shares discussed here, the relevant holding-period threshold is generally 24 months.

Short-Term Capital Gains on Foreign Shares

If an investor sells foreign shares after holding them for 24 months or less, the profit is generally classified as a short-term capital gain.

Such gains are ordinarily taxed according to the investor's applicable income tax slab rates.

For example, an investor falling within a higher marginal tax bracket may face a greater tax burden on short-term foreign equity profits.

Long-Term Capital Gains on Foreign Shares

If foreign shares are held for more than 24 months, the gains generally qualify as long-term capital gains.

The applicable tax rate is generally 12.5%, without indexation, subject to the relevant provisions.

This classification is different from the holding-period rules applicable to certain eligible Indian listed equity investments.

Indian Shares vs US Shares: Key LTCG Tax Differences

The comparison applies to typical resident individual investors. Specific transactions, taxpayer categories and statutory exceptions may require different treatment.

How Are Capital Gains From Foreign Shares Calculated?

Capital gains are generally determined by deducting the eligible acquisition cost and allowable transfer-related expenses from the sale consideration.

The basic calculation is:

Capital Gain = Sale Value − Acquisition Cost − Eligible Transfer Expenses

However, overseas investments introduce an additional complication because purchases and sales may take place in foreign currencies.

For example, an investor may buy shares in US dollars and later sell them when the rupee-dollar exchange rate has changed.

Indian tax calculations must follow the applicable foreign currency conversion rules, which may affect the taxable gain expressed in rupees.

Investors should therefore maintain complete records of purchase dates, sale dates, transaction values, brokerage charges and relevant exchange rates.

Which Other Investments Do Not Qualify for the ₹1.25 Lakh LTCG Threshold?

The special annual threshold is not a universal exemption covering every type of long-term capital gain.

Several commonly held investments fall outside its scope.

1. Property and Real Estate

Profits from selling land, residential property or other real estate assets do not automatically qualify for the ₹1.25 lakh equity-related LTCG threshold.

Property transactions follow their own capital gains provisions, including relevant holding-period and exemption rules.

2. Physical Gold and Silver

Capital gains arising from selling physical gold, silver and other precious metals are generally taxed under the rules applicable to those assets.

The special threshold for eligible equity investments does not apply merely because these metals were held for several years.

3. International Mutual Funds

Mutual funds investing primarily in overseas equities may not satisfy the statutory definition of an eligible equity-oriented mutual fund for the special LTCG provision.

Their tax treatment depends on the fund's structure, portfolio composition, acquisition date and applicable tax rules.

4. Debt Mutual Funds

Debt-oriented mutual funds can be subject to specific taxation provisions, including rules affecting certain funds acquired on or after prescribed dates.

Investors should not assume that all debt fund gains receive the same treatment as listed equity investments.

5. Bonds and Debentures

Capital gains taxation on bonds and debentures can vary according to the nature of the instrument and the relevant statutory provisions.

The ₹1.25 lakh equity-related threshold generally does not apply to these investments.

Is the ₹1.25 Lakh Exemption Available Separately for Every Demat Account?

No. The ₹1.25 lakh threshold applies to the aggregate qualifying long-term capital gains for the relevant tax year, not separately to each stock, trading account or investment platform.

For example, an investor cannot claim the full threshold independently for multiple eligible equity investments held through different brokers.

All qualifying gains must be considered together when calculating the applicable taxable amount.

Do Indian Investors Need to Report Their US Stocks in ITR?

Foreign investments can create additional income tax reporting responsibilities.

Indian residents who qualify as residents and ordinarily residents may need to disclose specified foreign assets and income in the relevant schedules of their income tax returns.

Depending on the circumstances, these disclosures can include overseas shares, foreign financial accounts and income earned outside India.

The reporting requirements may apply even when an investor has not sold the foreign shares during the relevant period.

However, disclosure obligations differ according to residential status and the nature of the foreign asset.

Investors should carefully examine the applicable income tax return form and reporting instructions.

Can You Claim Foreign Tax Credit on Overseas Investments?

Indian investors may sometimes face tax obligations in another country in addition to Indian taxation.

Where eligible foreign taxes have actually been paid, relief may be available under applicable Indian tax provisions and relevant Double Taxation Avoidance Agreements (DTAAs).

However, foreign tax credit is not automatic.

The amount and availability of credit depend on the nature of the income, the foreign tax paid, treaty provisions and compliance with documentation requirements.

Investors should also distinguish between foreign taxes on dividends and taxes on capital gains, as the applicable treatment may differ.

What Should Investors Check Before Selling Foreign Shares?

Before selling overseas investments, taxpayers should review the acquisition date, holding period, expected gain and applicable tax rate.

They should also consider whether foreign currency movements will affect the gain calculated in Indian rupees.

Maintaining accurate transaction records is essential, particularly for investors using international brokerage platforms.

Where investments involve multiple purchases, corporate actions or foreign tax payments, professional tax assistance may help prevent reporting mistakes.

LTCG Tax Rules 2026: What Is the Biggest Difference for Global Investors?

The most important distinction is that the ₹1.25 lakh annual LTCG threshold is linked to specific eligible investments and statutory conditions.

It is not a general exemption for all long-term capital gains.

Direct investments in US-listed or other foreign shares generally fall outside this special provision, even when the holding period exceeds 24 months.

Such long-term gains are ordinarily taxed at 12.5%, subject to applicable adjustments, surcharge and cess.

Investors should therefore calculate the post-tax returns on foreign investments rather than assuming that profits below ₹1.25 lakh will remain tax-free.

With discussions about possible equity taxation reforms continuing ahead of Budget 2027, taxpayers should distinguish between existing statutory provisions and any future proposals that have not yet become law.

Disclaimer: This article is for general information and does not constitute investment or tax advice. Tax treatment depends on individual circumstances, residential status, transaction dates and applicable legislation. Consult a qualified tax professional before making investment or filing decisions.