Photo: iStockphoto
Photo: iStockphoto

Q&A: Dividend income from Indian firms is tax exempt for NRIs

Dividend income is taxable in the hands of the registered shareholder irrespective of whether the dividend income is credited to a joint account

My brother is leaving for the US on a long-term assignment. He has investments in shares listed in Indian stock markets, from which dividend income is received regularly. This income is received in an account, where I am a joint holder. Will this be taxed in my name or my brother’s name?

—Vasundhara Rao

Under the current provisions of the income-tax law, dividend income received from an Indian company is exempt from income-tax in India. However, in case of an individual qualifying as “Resident" in India, if the total dividend income received from Indian companies exceeds Rs10,00,000, income-tax is payable at 10% (plus surcharge, if applicable and education cess) on the dividend income exceeding Rs10,00,000.

Thus, in case of an individual qualifying as “Non Resident" in India, the total dividend income received from Indian companies is exempt from income-tax in India.

An individual may qualify as “Non Resident" in India if any one of the following conditions is satisfied:

(a) Physical presence in India is less than 60 days during the relevant financial year;

(b) Physical presence in India is more than 60 days during the relevant financial year but less than 365 days in preceding 4 financial years; or

(c) Physical presence in India is less than 182 days and the individual left India for the purpose of employment outside India during the relevant financial year

Dividend income is taxable in the hands of the registered shareholder (i.e. the person who has made the investments) irrespective of whether the dividend income is credited to a joint account.

In your case, as the investments in shares of Indian companies were made by your brother, dividend income from such Indian companies is chargeable to tax in your brother’s hands and not in your hands.

If your brother qualifies as “Non Resident" in India (as per the conditions mentioned above), total dividend income received from Indian companies will be exempt from income-tax in India. However, if your brother qualifies as “Resident" in India, dividend income up to Rs10,00,000 will be exempt from income-tax in India. Balance dividend income will be taxable at 10% (plus surcharge, if applicable and education cess).

Sonu Iyer is tax partner and people advisory services leader, EY India

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