For Non-Resident Indians (NRIs), understanding the taxation of dividend income is crucial for financial planning and compliance. This blog post delves into the taxation of dividend income for NRIs under Section 115A of the Indian Income Tax Act.
Taxation Under Section 115A
As per Section 115A of the Income Tax Act, dividend income received by NRIs from Indian companies is fully taxable in India. This provision applies to dividends declared, distributed, or paid on or after April 1, 2020.
Key Points:
Tax Rate:
The dividend income is taxed at a flat rate of 20% (plus applicable surcharge and cess).
This rate applies regardless of the amount of dividend received.
No Deductions:
NRIs cannot claim any deductions under Chapter VI-A against this dividend income.
The tax is levied on the gross amount of the dividend.
TDS Implications:
The company paying the dividend is required to deduct Tax at Source (TDS) at the rate of 20% (plus applicable surcharge and cess).
If the NRI has a Permanent Account Number (PAN), this TDS rate applies.
Without a PAN, the TDS rate increases to 20% or the rate specified in the relevant tax treaty, whichever is higher.
Tax Treaty Benefits:
NRIs can avail benefits under the Double Taxation Avoidance Agreement (DTAA) between India and their country of residence, if applicable.
To claim DTAA benefits, the NRI must provide a Tax Residency Certificate from their country of residence.
Filing Tax Returns:
Despite TDS, NRIs may need to file an income tax return in India if their total income exceeds the basic exemption limit.
This allows for claiming any excess TDS or reporting any under-deduction.
Foreign Exchange Considerations:
Dividend income can be freely repatriated, subject to RBI guidelines and submission of required documents to the remitting bank.
Conclusion:
The taxation of dividend income for NRIs under Section 115A is straightforward but requires attention to detail. NRIs should be aware of these provisions to ensure compliance and optimize their tax liability. It’s advisable to consult with a tax professional familiar with NRI taxation to navigate these regulations effectively and explore any available tax planning opportunities