Is dividend income accrued from shares to a non-resident Indian taxable?
—Name withheld on request
Effective FY21 and onwards, any dividend income from shares of an Indian company is taxable in India. In case of a shareholder qualifying as ‘non-resident’ in India under the income tax law, dividend income is taxable at 20% plus applicable surcharge and 4% health and education cess on a gross basis. Thus, the applicable tax rate on dividend income for a ‘non-resident’ ranges between 20.8% and 28.5% depending on the level of total income and surcharge.
In case of a shareholder qualifying as a ‘resident’ in India, dividend income is taxable at applicable slab rates.
Any benefit under the double taxation avoidance agreement (DTAA) between India and the other country may be explored separately to avoid double taxation or get a lower rate. The company will withhold tax on dividend either at 20% plus applicable surcharge and 4% health and education cess or at a rate under DTAA, whichever is lower.
My relative received some amount in the NRI account here in FY21 and the same was used to repay debt and has no regular transaction. Is my relative required to file an income tax return for the specified FY?
—Name withheld on request
Under the Indian income tax law, an individual is required to file an income tax return if the gross taxable income exceeds the maximum amount not chargeable to income tax. For FY21, the maximum amount not chargeable to income tax is ₹2.5 lakh.
However, for the purposes of determining the threshold limit of ₹2.5 lakh, the gross taxable income should be computed before giving effect to the deductions under Chapter VI-A (such as under Section 80C, 80D and so on) or capital gains rollover exemptions (like Section 54, 54EC, 54F, etc).
Even if the gross taxable income is below ₹2.5 lakh, the law has been recently amended for mandatory furnishing of income tax return, in case an individual (among others): 1. Has deposited an amount exceeding ₹1 crore in one or more current accounts maintained with a bank during the FY; 2. Has incurred expenditure of an amount exceeding ₹2 lakh for himself or any other person for travel to a foreign country during the FY; 3. Has incurred expenditure of an amount exceeding ₹1 lakh towards the consumption of electricity during the FY.
Sonu Iyer is tax partner and people advisory services leader, EY India.
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