3 min read.Updated: 30 Nov 2020, 12:17 PM ISTSonu Iyer
As an NRI under the income tax law, if the withholding is at 20% plus applicable surcharge and 4% health and education cess and you do not have any other taxable income in India, then you are not required to furnish income tax return in India.
I have been living in the UAE with a residency visa for almost five years. I started investing in Indian stocks this year. I have been charged 20% TDS (tax deducted at source) on the dividend. Will I get exemption against TDS? What are my tax obligations?
Effective FY21, any dividend income from shares of an Indian company is taxable in India. In case of a shareholder qualifying as a non-resident in India (NRI) under the India tax law, dividend income is taxable at 20% plus applicable surcharge and 4% health and education cess (maximum marginal rate of 28.5%) on gross basis. In case a shareholder qualifies as a resident in India, dividend income is taxable at applicable slab rates.
However, under the Double Taxation Avoidance Agreement (DTAA) between India and the UAE, such dividend may be taxable at the rate 10%. To apply for the beneficial rate of 10% under DTAA, you will need to qualify as resident of the UAE, obtain a tax residency certificate (TRC) from UAE tax authorities and furnish it along with Form 10F to the Indian dividend paying company.
Under the DTAA between India and UAE, an individual qualifies as a resident of the UAE if he is physically present in the UAE for at least 183 days in the relevant calendar year.
The Indian company will withhold tax on dividend either (a) at 20% plus applicable surcharge and 4% health and education cess or (b) at a rate under DTAA. You will need to inform the Indian company if you intend to claim beneficial rate of 10% under DTAA and furnish necessary declarations.
As an NRI under the income tax law, if the withholding is at 20% plus applicable surcharge and 4% health and education cess and you do not have any other taxable income in India, then you are not required to furnish income tax return (ITR) in India. However, even as an NRI, if you avail the benefit of a lower tax rate under the DTAA, you would be required to furnish ITR in India.
Further, effective FY21, an individual may qualify as a resident but not ordinarily resident (RNOR) in India if the individual (i) is a citizen of India; (ii) earns total income (other than income from foreign sources) exceeding ₹15 lakh during the financial year under consideration; and (iii) is not liable to tax in any country or territory by reason of his domicile or residence. An individual qualifying as RNOR is liable to tax in India only on (a) his or her Indian source income including incomes deemed to accrue or arise in India and (b) foreign sourced income if derived from a business controlled in or a profession set up in India.
If you qualify as RNOR in India under the Income-tax law as per the above provisions, dividend income will be taxable at applicable slab rates and not at flat rate of 20% (plus surcharge and cess). Even in such case, you may apply the beneficial rate of tax of 10% under the DTAA between India and UAE provided you qualify as a resident of UAE under the DTAA between India and UAE, obtaining TRC from UAE tax authorities and furnish along with Form 10F to the Indian dividend paying company.
Thus, in your case, you will need to first determine your residential status under the India income-tax law, determine the rate of tax applicable on dividend income based on your residential status in India and then apply the beneficial rate of tax under the DTAA between India and UAE, subject to satisfaction of the conditions stated above.
Sonu Iyer is tax partner and people advisory services leader, EY India. Queries at firstname.lastname@example.org