Home / Money / Personal Finance /  How is dividend income for NRIs taxed?

How is dividend income from shares taxed for non-resident Indians (NRIs)?

—Name withheld on request

 

Effective financial year 2020-21, any dividend income from shares of an Indian company is taxable in India. In case of a shareholder qualifying as ‘non-resident’ in India under the Indian Income-tax law, dividend income is taxable at 20% plus applicable surcharge and 4% health and education cess on gross basis. Thus, the applicable tax rate on dividend income for a non-resident ranges between 20.8% and 28.5%, depending upon the level of total income and applicable surcharge.

In case of a shareholder qualifying as a “resident" in India, dividend income is taxable at the applicable slab rates.

Benefit under the Double Taxation Avoidance Agreement (DTAA) between India and the other country may be explored to avoid double taxation or get a lower rate of tax. 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, whichever is lower. For application of lower DTAA rate, the non-resident shareholder has to furnish tax residency certificate of the other country to establish entitlement to claim DTAA benefit.

 

My son is staying abroad. His Public Provident Fund account matured in April 2022 and the proceeds have been credited to his Non-Resident Ordinary (NRO) account. How much money can be transferred to him this financial year?

—Name withheld on request

 

Under the exchange control law, the funds can be transferred outside India from the NRO account subject to an overall limit of $1 million per financial year (April-March) subject to documentation as requested by the bank. 

 

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

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