Taxation of Dividend Income of Non-Residents
Dividend income received by a non-resident from an Indian company is always taxable in India. However, dividends from a foreign company are taxable in India only if received in India. Unlike regular income, dividends for non-residents are taxed on a gross basis at concessional rates.
Taxability of Dividend Income
- Dividend from an Indian Company: Always deemed to accrue in India and taxable in India, regardless of where it is received.
- Dividend from a Foreign Company: Not taxable in India unless received in India.
- DTAA Applicability: If a tax treaty between India and the recipient’s country provides a lower tax rate, DTAA provisions prevail.
Recognition of Dividend Income
- Final and Deemed Dividend: Taxable in the year it is declared, distributed, or paid.
- Interim Dividend: Taxable when unconditionally made available to the shareholder.
Taxation and Deductions
- Taxable under “Income from Other Sources”
- Non-residents cannot claim deductions for expenses related to earning dividend income.
- Chapter VI-A Deductions are not allowed for non-residents, except for units in an International Financial Services Centre (IFSC) underSection 80LA.
Applicable Tax Rates
|
Section |
Assessee |
Tax Rate |
|
115A |
Non-resident/Foreign company |
10% (IFSC units), otherwise 20% |
|
115AB |
Offshore fund (Mutual Fund units) |
10% |
|
115AC |
Non-resident (GDRs of Indian companies/PSUs) |
10% |
|
115AD |
Foreign Portfolio Investors (FPIs) |
20% |
|
115E |
Non-Resident Indians (NRIs) |
20% |
- If DTAA offers lower rates, DTAA rates override the above rates.
Minimum Alternate Tax (MAT) on Dividends
- MAT applies to foreign companies only if they have a Permanent Establishment (PE) in India and income is not taxable under the presumptive tax scheme.
- Dividend adjustments for MAT are made if the tax rate is lower than the MAT rate.
Exemptions from Tax on Dividend Income
- Income of European Economic Community (Section 10(23BBB)).
- Income from specified fund located in IFSCs (Section 10(23FBC)).
- Dividend from business trusts (REITs/InvITs) (Section 10(23FC)/10(23FD)).
- Dividends received by wholly owned subsidiary of the Abu Dhabi Investment Authority (ADIA), Sovereign Wealth Funds and Pension Funds (Section 10(23FE)).
- Dividend received by IFSC units engaged in aircraft or ship leasing business from another IFSC unit engaged in same business (Section 10(34B)).
TDS on Dividend Payments to Non-Residents
Tax is deducted at source (TDS) under the following provisions:
|
Section |
Nature of Income |
|
194LBA |
Dividend received from SPV distributed by the business trust to the non-resident |
|
194LBB |
Dividend distributed by Category-I or Category-II AIFs |
|
196A |
Dividend distributed by mutual funds |
|
196B |
Dividend income of Offshore Fund in respect of units of mutual fund purchased in foreign currency |
|
196C |
Dividend on GDRs purchased in foreign currency |
|
196D |
Dividend income of FPIs from securities (other than mutual funds purchased in foreign currency) |
|
195 |
Dividend in any other case |
Return Filing Requirements
A non-resident must file an income tax return if his income is taxable in India. However, return filing is not required if:
- The non-resident individual, AOP, or BOI has total income (before specified exemptions/deductions) below the basic exemption limit.
- The non-resident or foreign company earns only specified income (like dividend, interest) underSections 115A/ 115AC and TDS on such income is deducted at the rates not lower than the tax rates provided under such sections.
- An NRI opts for the special regime (Chapter XII-A) and earns only foreign exchange asset income, with TDS deducted.
- Income is only from investment in Category III AIF (specified fund underSection 10(4D)).