Is Dividend Income Taxable For NRI: Rates, TDS & Filing Guidelines in India

Many NRIs invest in Indian shares and mutual funds to grow wealth back home, but once returns start coming in, a common question arises, “Is dividend income taxable for NRIs?” The tax treatment for NRIs is different from residents, and dividend income is subject to TDS deduction in India at specific rates. Understanding how tax is applied, how DTAA can help avoid double taxation, and what documentation is needed ensures NRIs receive their income smoothly and maximise their returns. With the right clarity, dividend earnings become a smart and predictable investment benefit, not a tax confusion. [1]

Is Dividend Income Taxable for NRIs?

Yes, dividend income is taxable for NRIs in India, and understanding NRI dividend income taxation is important for accurate compliance. Under the Income Tax Act, dividends from Indian companies or mutual fund schemes are treated as taxable income for non-resident investors. To simplify collection, the law requires tax to be deducted at source, so TDS is applied before the dividend reaches the NRI’s bank account. This withheld tax reflects the standard rate unless a Double Taxation Avoidance Agreement offers relief. NRIs can also claim refunds if the TDS deducted exceeds their final tax liability. [2]

When NRIs Need to File Income Tax Return in India?

Tax on dividend income for NRIs is treated differently depending on income type and whether TDS fully covers the liability. [3]

• Claiming a refund of excess TDS: NRIs must file a return when excess TDS is deducted on dividend income or other passive earnings that are already taxed at source, enabling them to claim the eligible refund smoothly.
• Claiming DTAA rate benefits: Filing becomes necessary when an NRI wants to apply a lower DTAA tax rate instead of the higher TDS withheld by Indian companies or mutual funds during dividend distribution.
• Having additional Indian income: An ITR return is mandatory when an NRI earns rental income, capital gains, or business income, requiring a detailed tax computation because TDS does not fully cover the final tax liability.

NRI Dividend Tax Rate and TDS Rules

Understanding how tax on NRI dividend income applies is important, as TDS is deducted before the amount is credited and varies based on investment type, compliance, and PAN availability. [4]

• Dividend from Indian Companies: Dividends from Indian companies attract a standard 20 percent TDS plus surcharge and cess, and the tax is deducted before payment, affecting the final credited amount for NRIs.
• Dividend From Mutual Funds: Mutual fund dividends received by NRIs are taxed through a flat 20 percent TDS at source, regardless of scheme type, ensuring consistent taxation across different categories of mutual fund investments.
• Higher TDS if PAN Not Provided: When an NRI does not provide a valid PAN or complete KYC, a significantly higher TDS rate applies, resulting in larger deductions that can only be recovered through later refund claims.

Dividend Tax Rules for NRIs Under DTAA

Understanding dividend tax rules for NRIs is important because DTAA agreements can lower tax liability, reduce TDS rates, and help NRIs avoid double taxation when receiving dividend income from Indian companies or mutual funds. [5]

• Why DTAA Can Reduce Tax Liability: DTAA reduces tax liability by allowing NRIs to use treaty rates instead of standard TDS, preventing double taxation, and ensuring that dividend income is not taxed twice across two countries.
• Common DTAA Dividend Tax Rates: Many countries, including the USA, UK, UAE, Singapore, and Canada, offer reduced DTAA dividend tax rates between ten and fifteen percent, helping NRIs significantly cut their overall tax burden.
• NRIs Can Claim Refund: When an Indian company deducts TDS at twenty percent despite a lower DTAA rate, NRIs can file an income tax return to claim the excess tax amount as a refund.
• Requirement to Submit TRC: To access DTAA benefits and lower TDS rates, NRIs must provide a valid Tax Residency Certificate confirming their residency status in the relevant treaty country for the assessment period.

Documents Required to Claim Lower TDS Under DTAA

NRIs must submit specific documents to access reduced NRI dividend tax rate benefits under DTAA, ensuring companies apply the correct TDS rate rather than the standard deduction automatically applied to dividend payouts.

• TRC (Tax Residency Certificate): A government-issued certificate confirming the NRI’s tax residency in a treaty country, required to validate DTAA eligibility and ensure the correct reduced TDS rate is applied on dividend income.
• Form 10F: A mandatory self-filled form providing basic taxpayer details such as nationality, tax identification number, and residency status, helping Indian companies verify DTAA claims and apply the appropriate reduced dividend TDS rate.
• Self-Declaration: A written declaration confirming the NRI’s eligibility to claim DTAA benefits, affirming beneficial ownership of dividend income, and ensuring Indian companies correctly apply reduced TDS according to treaty provisions.
• PAN: A valid Indian PAN is essential for NRIs to claim DTAA benefits because it prevents higher TDS rates, ensures accurate tax mapping, and enables refund claims when excess dividend tax is deducted.
• Proof of Beneficial Ownership: Documentation confirming the NRI is the actual recipient of dividend income, helping avoid misuse and ensuring companies correctly apply the DTAA-based reduced TDS rate on eligible dividend payments.

How NRIs Can Reduce Tax on Dividend Income?

NRIs can reduce their overall dividend tax burden by using treaty benefits, maintaining proper documentation, and planning investments carefully to ensure TDS is applied at the most accurate and favorable rate. [6]

• Step 1: NRIs can apply lower DTAA rates instead of standard TDS, reducing dividend taxation and preventing double taxation when income is received from Indian companies or mutual fund distributions abroad.
• Step 2: Providing these documents helps companies verify treaty eligibility and apply reduced DTAA rates, preventing higher default TDS from being deducted on dividend payments to NRIs.
• Step 3: NRIs can recover excess TDS deducted on dividends by filing their income tax return, especially when the DTAA rate is lower than the standard withholding rate applied.
• Step 4: Maintaining an active PAN helps avoid higher TDS deductions under compliance rules, ensures dividend income is taxed correctly, and minimizes unnecessary or excessive tax withholding by companies.
• Step 5: Planning investments across instruments helps NRIs stay above higher surcharge thresholds, maintaining a lower effective tax rate on dividend income throughout the financial year.

Is Dividend Income Taxable in an NRI's Resident Country?

NRIs must understand that NRI dividend income is not exempt from taxation in India, as most countries require residents to report global income, including dividends earned from Indian companies or mutual funds. This means an NRI may have to disclose the same dividend earnings in their resident country’s tax return. However, Double Taxation Avoidance Agreements ensure they don’t pay tax twice on the same income by allowing credit or relief for tax already paid in India. For example, NRIs in the USA must report Indian dividend income in their US tax filings, even if TDS was already deducted in India. [7]

Dividend Income Tax Example for NRIs

A simple illustration clarifies how dividend taxation works for NRIs and shows how TDS deductions and DTAA benefits affect the final amount received and the refund that can be claimed later through filing.

• Dividend received: ₹10,000
• TDS deducted at 20 percent: ₹2,000
• Amount credited: ₹8,000
• If the applicable DTAA rate is 10 percent instead of 20 percent, the NRI can claim a refund of the extra 10 percent when filing the income tax return.

How NoBroker Helps NRIs With Tax Filing

NoBroker simplifies the entire process of handling tax on dividend income for NRI, ensuring NRIs stay compliant without dealing with confusing paperwork or missed requirements. Their team guides investors through the essential documentation required to claim DTAA benefits, including PAN updates, Form 10F, TRC, and self-declarations. NoBroker provides NRIs with any legal assistance, be it ITR, DTAA, or tax refund. With clear guidance and organized support, NRIs can manage dividend taxation confidently and avoid unnecessary deductions or compliance errors. Get seamless tax documentation support with NoBroker’s expert team.