I’ve been residing within the UK for 5 years now, and I began investing in Indian shares this 12 months. Is there a restrict on dividend income for non-resident Indians (NRIs) and the way will the dividend be taxed in my palms?
—Name withheld on request
Until 31 March, dividend income from an Indian firm was exempt from Income tax in India with sure exception for tremendous wealthy “residents”. The Finance Act, 2020 modified the dividend taxation system and reintroduced the classical system of dividend taxation within the palms of shareholders, with impact from 1 April 2020.
For shareholders qualifying as NRI, dividend income is taxable on the rate of 20% plus relevant surcharge and 4% well being and schooling cess (most marginal rate of 28.5%) on a gross foundation.
However, beneath the double taxation avoidance settlement (DTAA) between India and the UK, such dividend can be taxable on the rate 15% or 10% (as relevant).
To apply for the useful rate of 15% or 10% beneath DTAA, you have to to qualify as “resident” of the UK, receive a tax residency certificates (TRC) from the UK tax authorities and furnish it together with Form 10F to the Indian dividend paying firm.
The Indian firm will withhold tax on dividend both (a) at 20% plus relevant surcharge and 4% well being and schooling cess or (b) at rate beneath the DTAA. You will want to inform the Indian firm when you intend to declare the useful rate of 15% or 10% beneath DTAA and furnish the mandatory declarations.
In your case as an NRI beneath the income tax regulation, if the withholding tax is at 20% plus relevant surcharge and 4% well being and schooling cess, and also you wouldn’t have every other taxable income in India, then you definitely are not required to furnish income tax return (ITR) in India. However, as an NRI, when you avail of the good thing about a decrease tax rate beneath DTAA, you’d be required to furnish ITR in India.
Sonu Iyer is tax associate and other people advisory companies chief, EY India. Send in your queries and views at [email protected]