Lesson 3 of 3 · International Investing — Currency, Concentration & Cross-Border Tax

Cross-Border Tax — Foreign Dividends, Tax Credit and US Estate Tax

Holding foreign shares directly brings two tax questions that a domestic investor does not face: how foreign dividends are taxed in India when tax has also been deducted abroad, and whether the holding is exposed to US estate tax. This lesson covers both.

Fact-checked 7 October 20263 practice questions in the game

Worldwide income and foreign dividends

A resident (and ordinarily resident) individual is taxed in India on worldwide income. A dividend on directly held foreign shares is therefore added to total income and taxed at the individual's slab rate.

The other country may also deduct tax from the dividend before paying it. That does not make the dividend exempt in India: it remains taxable here, and relief for the foreign tax comes through a credit.

How the foreign tax credit works

Tax already paid abroad on the dividend can be claimed as a credit against the Indian tax on the same income, under the relevant tax treaty or the Act's own relief provisions (sections 159 and 160 of the Income-tax Act, 2025; sections 90 and 91 of the 1961 Act). The income is thus not taxed twice in full.

The credit has a ceiling: it is limited to the Indian tax on that income. It is claimed in the prescribed form, with proof of the foreign tax, under the rules in force from 1 April 2026. Older material refers to Form 67, the form under the earlier rules.

US estate tax

Estate tax is charged on what a person leaves at death. The United States charges it on US-situated assets, such as shares of US-incorporated companies, held by a person who is neither a US citizen nor a US resident. For such a person the exemption is only USD 60,000.

The far larger exemption for US citizens and residents, USD 15 million for 2026, does not apply, and India has no estate-tax treaty with the US.

What is not a US-situated asset

Shares of non-US companies are not US-situated assets. Nor are units of an Indian mutual fund that invests abroad: the investor holds units of an Indian scheme, and the scheme holds the foreign securities.

Rules at a glance

Foreign dividendsTaxed at the resident's slab rate, as part of total incomeIncome-tax Act, 2025

Foreign tax creditAgainst the Indian tax on the same income, limited to that tax; claimed in the prescribed formIncome-tax Act, 2025, sections 159 and 160 (sections 90 and 91 of the 1961 Act)

US estate-tax exemption, non-resident who is not a US citizenUSD 60,000 on US-situated assetsUS Internal Revenue Service; India has no estate-tax treaty with the US

Exemption for US citizens and residentsUSD 15 million for 2026; not available to othersUS Internal Revenue Service

Illustration

Which holdings count for US estate tax

Hemant, 58, a resident Indian who is not a US citizen, holds shares of US-incorporated companies worth USD 110,000 in his own name, shares of non-US companies worth USD 40,000, and units of an Indian mutual fund scheme that invests in US shares. The values are assumptions for the example.

Only the first is a US-situated asset of his. It is 110,000 − 60,000 = USD 50,000 above the exemption, so he is exposed to US estate tax on it. The other two holdings are not US-situated assets, whatever their value.

Worked example

Foreign tax credit on a dividend

A resident receives a foreign dividend worth ₹1,00,000, from which ₹25,000 of tax has been deducted abroad. The 25% rate is assumed for arithmetic only; the actual rate depends on the country and the treaty. Surcharge and cess are ignored.
Case A, slab rate 30%: Indian tax on the dividend is 30% × 1,00,000 = ₹30,000. Credit for foreign tax: ₹25,000. Payable in India: ₹30,000 − ₹25,000 = ₹5,000.
Case B, slab rate 20%: Indian tax on the dividend is 20% × 1,00,000 = ₹20,000. The credit is limited to that Indian tax, so it is ₹20,000, not ₹25,000. Payable in India: nil. The remaining ₹25,000 − ₹20,000 = ₹5,000 of foreign tax gets no credit.

Result. Total tax on the dividend is ₹30,000 in Case A (₹25,000 abroad and ₹5,000 in India) and ₹25,000 in Case B. In neither case is it taxed twice in full, and in neither is it exempt in India.

Key points

Foreign dividends are taxed at slab rates in a resident's hands; tax deducted abroad does not make them exempt in India.
Credit for the foreign tax is available against the Indian tax on that income, limited to that tax, and is claimed in the prescribed form (Form 67 under the earlier rules).
A person who is neither a US citizen nor a US resident gets a US estate-tax exemption of only USD 60,000 on US-situated assets.
India has no estate-tax treaty with the US; units of Indian mutual funds and shares of non-US companies are not US-situated assets of the investor.

Common misunderstandings

Tax deducted abroad does not settle the matter in India: the dividend is still taxable here at the slab rate, with a credit for the foreign tax.
The foreign tax credit is not unlimited: it cannot exceed the Indian tax on that income.
The USD 15 million US estate-tax exemption is not available to a resident Indian who is not a US citizen: the exemption on US-situated assets is USD 60,000.

Questions people ask

Is a foreign dividend taxed twice?

Not in full. Tax already paid abroad on it is credited against the Indian tax on it, up to the amount of that Indian tax.

In which form is the credit claimed?

In the form prescribed under the rules in force from 1 April 2026; Form 67 was the form under the earlier rules.

Does India have an estate-tax treaty with the US?

No.

What this lesson relies on

Income-tax Act, 2025 — sections 159 and 160 (relief for foreign tax; sections 90 and 91 of the 1961 Act)
US Internal Revenue Service — estate tax for non-residents who are not US citizens

This lesson was reviewed independently against these sources on 7 October 2026. Rules change: check the current regulation, scheme document or policy wording before relying on any figure. This is education, not advice.