Dividend Income is defined as the distribution of an entity’s property to its shareholders. While generally money, dividends can likewise be stock or some other property. If a shareholder is qualifying as a Non-Resident Indian (NRI) under the India tax law, dividend income is taxable at 20% in addition to an appropriate additional charge and 4% health and education cess (most maximum marginal rate of 28.5%) on a gross basis. On the off chance that an investor qualifies as a resident in India, dividend income is taxable at applicable slab rates.
In any case, under the Double Taxation Avoidance Agreement (DTAA) among India and the UAE, such dividends might be taxable at the rate of 10%. To apply for the beneficial rate of 10% under DTAA, you should qualify as an inhabitant of the UAE, obtain a Tax Residency Certificate(TRC) from UAE tax authorities and outfit it along with Form 10F to the Indian dividend-paying organization.
Under the DTAA between India and UAE, an individual qualifies as a resident of the UAE if he is physically present in the UAE for at least 183 days in the relevant calendar year. The Indian organization will retain tax on dividend income either (a) at 20% plus applicable surcharge and 4% health and education cess or (b) at a rate under DTAA. You will have to inform the Indian company on the off chance that you intend to claim a beneficial rate of 10% under DTAA and outfit necessary declarations.
As an NRI under the Income Tax Law, if the retention is at 20% plus applicable extra charge and 4% health and education cess and you don’t have some other taxable income in India, at that point you are not required to outfit income tax return (ITR) in India. However, even as an NRI, in the event that you avail the benefit of a lower tax rate under the DTAA, you will have to outfit ITR in India.
Further (FY21), an individual may qualify as an inhabitant yet not ordinarily resident (RNOR) in India if the individual (I) is a resident of India; (ii) earns total income (other than pay from foreign sources) surpassing Rs.15 lakh during the financial year under consideration; and (iii) isn’t obligated to tax in any nation or region by reason of his domicile or residence. An individual qualifying as RNOR is liable to tax in India only when (a) their Indian source income including income deemed to accrue or arise in India and (b) foreign-sourced income if derived from a business controlled in or a profession set up in India.
In the event that you qualify as RNOR in India under the Income-tax law according to the provisions mentioned above, dividend income will be taxable at applicable slab rates and not at a flat rate of 20% (in addition to surcharge and cess). Indeed, even in such case, you may apply the beneficial rate of tax of 10% under the DTAA among India and UAE provided, you qualify as a resident of UAE under the DTAA among India and UAE, acquiring TRC from UAE charge specialists and outfit along with Form 10F to the Indian dividend-paying organization.
Thus, you should initially decide your residential status under the India Income Tax law followed by the determination of tax rate applicable on dividend income based on your residential status in India and afterward apply the beneficial rate of tax under the DTAA among India and UAE, subject to fulfillment of the conditions expressed previously.
If a shareholder is qualifying as a Non-Resident Indian (NRI) under the India tax law, dividend income is taxable at 20% in addition to an appropriate additional charge and 4% health and education cess (most maximum marginal rate of 28.5%) on a gross basis.
For more information, visit the website of All India ITR