How does one show the dividend income in ITR filings of India? And what's the benefit/loss based on our tax slabs?

While earning dividends and reinvesting them were my good learnings from Indian market,
I found that, it’s tough to do that in US market - even if I had $50 worth of dividend income from some stock units in an year.

To say, my challenges were:

  • 25% deduction of tax while we get that dividend
  • whatever 75% obtained, has to be shown in ITR filings; which as to what I heard delays the ITR processing/refunds by an year or more in India.

What have been your challenge to this dividend reinvestment strategy? Or how do you overcome it?
Does one find it less lucrative in US market, because of double taxation for Indian investors?

Dividend investing does have it’s problems as far as foreign investments is concerned.

You’re right - 25% is deducted on US dividend. Quick example below:

Ted Singh invests in US stocks and receives small amounts of dividend every year. There is a withholding tax of 25% on dividends in the US.

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Galactic Outlook

Foreign Tax credit will be available. Using similar numbers below for the sake of our example.

Again, let’s analyze why 25% was deducted in the US. This is because of the India-US DTAA. The India-US DTAA states that dividend earned in the other country (USA) will be taxed at 25% in that country (USA).

Now, the DTAA also states that said dividend income can also be taxed in India (by virtue of residence in India).

Again, note that gross amount of Dividend (INR 10 lakh) would be shown in the ITR and not net amount. You get foreign tax credit for the taxes deducted.

Let’s quickly look at how Foreign Tax Credit (FTC) would be calculated. Note that for the sake of simplicity, we have assumed that Ted is in the 20% slab and tax rate in India is a flat 20% (we have skipped cess for now for the sake of this example).

In this case, since Ted was in a lower tax slab in India, he ends up not having to pay any additional tax.

Hope this helps in understanding!

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Nice explanation there, Thanks.

Did you/your known contact face any delays with the ITR processing/refunds by an year or more in India if they showcased the foreign dividend income in ITR?

@GalacticAdvisors in case you missed the post :slight_smile:

Usually, we have noticed delays in processing/refund when Foreign Tax Credit is claimed while filing the ITR. Since these do not get processed at the CPC level and are transferred to the Assessing Officer.

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