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After knowing that companies have to deduct tax at source on dividends, I produced a tax residency certificate (TRC) seeking to exempt me from TDS. But the companies are not accepting it. The government of Kuwait gives TRC only for up to 31 March 2021. But the companies want it from 1 April 2021 to 31 March 2022. They say I can get it only after 183 days starting 1 March 2021. The companies are saying they will deduct tax on dividends. Can I claim refund of the tax while filing returns for 2020-21 this year and for 2021-22 next year.

—Name withheld on request

 

As per the Income Tax Act of India, dividends paid or distributed by a company on or after 1 April 2020 shall be taxable in the hands of the shareholders. The company distributing dividends shall have to deduct tax at source while paying dividend, at applicable rates (including any surcharge or cess). TDS will be deducted at 10% as per Section 194 on the amount of dividend payable for residents. For non-residents, TDS will be deducted usually at 20% plus applicable cess and surcharge. However, in the case of individuals, no TDS would be deducted if the aggregate dividend from such a company during the financial year does not exceed 5,000.

As such, NRIs are allowed benefit from double taxation avoidance agreement (DTAA) provisions if they are more beneficial to them. This can be done by submitting your PAN, TRC (issued by the country of which you are a tax resident) certifying your tax residency status during FY22. In case you are not able to submit documents in time, you may choose to do one of the following: Obtain a certificate from your tax officer which specifies lower/nil withholding tax under Section 197, and submit it to the company so that TDS is deducted as per the rates prescribed in the certificate. Else, you may claim a refund by filing your tax return in India. Do make sure you cross verify TDS deduction in your Form 26AS.

Archit Gupta is founder and chief executive officer, ClearTax.

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