11 July 2024
If a resident individual holds shares in a foreign company (private limited) located in the USA and sells those shares, the taxability in the USA depends on several factors:
1. **Residency Status in the USA**: If the individual is a tax resident of the USA according to US tax laws (generally determined based on substantial presence or green card status), they are subject to US tax on their worldwide income, including capital gains from the sale of shares.
2. **Tax Treaties**: The tax treaty between India and the USA may provide relief to avoid double taxation on income, including capital gains. Typically, tax treaties have provisions for the taxation of capital gains from the sale of shares, depending on the period of ownership and other criteria.
3. **Taxation of Capital Gains in the USA**: - **Long-term Capital Gains**: If the shares are held for more than one year before sale, the capital gains are usually subject to preferential tax rates in the USA. - **Short-term Capital Gains**: If the shares are held for one year or less, the gains are taxed at ordinary income tax rates. - The specific rates can vary depending on the taxpayer's income level and filing status.
4. **Reporting Requirements**: The individual may need to report the sale of foreign shares on their US tax return, typically using Form 1040 and reporting the capital gains or losses on Schedule D.
5. **Foreign Tax Credits**: If the individual pays taxes on the capital gains in the USA, they may be eligible to claim foreign tax credits in India to avoid double taxation on the same income.
### Conclusion
In summary, if a resident individual sells shares of a foreign company (private limited) located in the USA, they are generally liable to tax on the capital gains in the USA if they are considered a tax resident there. It's crucial for the individual to consult with a tax advisor who is knowledgeable about both US and Indian tax laws to understand the specific tax implications, including potential tax treaties that may affect the taxation of capital gains on the sale of foreign shares.
CAclubindia
