While the dividend tax rate for residends is 10%, for NRIs, the dividend is taxed at 20% (+ cess etc) while LTCG is taxed at the same rate of 12.5% (+cess).
Considering the differential between the dividend tax versus LTCG, to me it makes sense to sell stocks (assuming the holiding period is >12 months) before ex-dividend date, at least for those stocks where the yield is high.
Anybody with a differing opinion or different insights?
I think dividend is taxed at marginal rate of income tax now that dividend distribution tax has been removed. So, it could be as high as 30%+cess etc in the highest income bracket.
I’m referring to resident Indians here.
This is easy said than done. Also depends on lots of other factors being whats your intenetion of holding, whether entirely for dividend or capital appreciation.
If only for dividend , how and when the company declares the dividend. Is it yearly or quarterly?
Also, if we sell and buy back, the cost related to such transactions need to be considered.
Also, if you are selling, and consequently if you have a capital appreciation and need to sell, then there will be STCG which is taxed at 20%.
Myself being an NRI, and dividend income is not my intent and I have less dividend , I opted to ignore dividend related transactions and its transactions as well.
In that case even for resident Indians who are above marginal tax rate of 20%, it might be an option to sell down certain holdings before ex dividend and then potentially buy it back …
This has been the case for years now. Better not to go for dividend yielding stocks
Only advise is that if you are in a country with DTAA agreement you can decrease the dividend tax rate. For example, I am in UAE and after DTAA I am paying 10% for dividends. Also please note that there is a cost of acquiring tax residency certificate, so you have to calculate accordingly.
Could you please elaborate what is this tax residency certificate, and what are the benefits of having it? Hearing about it for the first time
Among so many things to track and keep yourself involved (and not involved - getting yourself to not get involved is even tougher) - I think spending time & energy on this robotic task is neither a sincere long-term investor would do nor would aspire his time & energy to be spent on, no matter how much ever the savings be.
It would need the mindset of traders and yes, they might love to do it or already must be doing it and saving lot of money this way.
Now, this doesn’t mean long term investors are losing money. It’s just that where you want your time & energy to be spent & focus on…
I’m a newbie to stocks, could you please elaborate what benefit this provides ? From what I can see:
How is this beneficial ? I know I’m missing something, could you help ?
Each country has it own cost of getting a tax residency certificate. In UAE we can apply for it online and submit in indian tax filing. Cost comes around 30000 INR. so it will depend on which country you are in and what is your DTAA rate. As i wrote earlier for UAE it is 10%, so by paying 30000 rs my tax on dividend goes down from 20% to 10%.
I believe first 3 lacs of income ( say from dividends ) is not taxed - the 20% TDS is refund if you file ITR
No. For NRIs, the dividend is taxed directly at special rate of 20%. Even Re.1 will be taxed so.
NRIs also don’t have the option to exhaust basic exemption limit against stcg or ltcg as well, which are also taxed at 20 and 12.5.
For NRI’s - Even though TDS is 20% on Dividend, U can file your returns and Tax will be calculated based on the total earnings.
If you u have no other Income in India - Taxed dividend will be returned based on the Tax slab.
Hope this helps.
Nope - read reply from MHS - there is no difference between NRI and Indian when it comes to income tax slabs - if NRI earns less than 2.5 or I believe 3 lacs then that income ( whether from capital gains or from dividends or from interest ) is exempt from all income tax - the NRI treatment is same as for citizen of India. Any TDS can be refund by filing ITR.
Can I know if u are filing IT return as NRI?? And you are paying at slab rate?? Point being that I am filing as an NRI and my total income from India is less than 2.5L and yet dividend is taxed at special rate. My academic and professional knowledge also confirms the same.
Companies are required to deduct TDS at 20% from the total dividend payout if the shareholder is a non-resident Indian (NRI). However, they can avail of a lower tax on dividend income by utilising the DTAA provisions. For this, they must submit relevant documents such as Form 10F, tax residency certificate, beneficial ownership declaration, etc. In case of failure to submit these documents, a higher TDS is applicable, which the NRIs can claim as a refund at the time of filing ITRs.
U have to file ITR to get refund of the TDS then
I am filing return as non resident. I am taxed at 20 on dividend.
I understand your point being that where there is DTAA ,we can take advantage.
But the claim of dividend taxation for NRIs at slab rate is wrong. It’s 20% + cess.
For residents, dividend from domestic companies Upto RS.5000 is non taxable. But Non residents don’t get that advantage. It’s taxable@20% for even Re.1.
This is wrong. NRIs have to pay 20% even if other income is 0. some people are filing as normal but may get love letter from IT department at any time 
For a non-resident earning only dividend income, the basic exemption limit is not available. Even one rupee of dividend income earned by a non-resident is fully taxable without providing the benefit of basic exemption limit.
Now, under the Income Tax Act, 1961, dividend income of a non-resident is taxed at a special rate of 20% plus applicable surcharge [capped at 15%] and cess at 4%.
Companies would generally withhold tax on such dividend income at the rate of 20% plus surcharge [if applicable] and cess even if one rupee is paid as dividend to non-residents.
So, if tax is fully withheld, there will not be any payment to be made or refund to be claimed in the ITR and only ITR filing would suffice.
Now, under most of the DTAAs that India has entered into with other countries, the rate of tax on such dividend could be either 10% or 15% depending upon the tax treaty. This is a flat rate without levying any additional surcharge or cess.
A non-resident taxpayer can avail the lower rate of tax on dividends [10% or 15%, or any other rate as provided in the DTAA] vis-à-vis the higher rate of 20% plus surcharge [if applicable, capped at 15%] and cess of 4% as provided under the Act.
In order to avail the DTAA benefit, a non-resident taxpayer will need to furnish a TRC as well as a Form 10F, depending on what information is mentioned in TRC.
In case TRC and related documents are furnished to the company paying the dividend, it may consider the lower rate of withholding tax as prescribed under the tax treaty instead of 20% plus surcharge and cess as prescribed under the Act.
If DTAA rate is not considered by the company and tax is withheld under the Act at 20% plus applicable surcharge and cess, then the taxpayer may, at the time of filing the ITR, avail the lower rate of tax on dividends as prescribed under the DTAA and claim a refund of the excess taxes withheld by the company. TRC and related documents would be necessary to claim DTAA benefit.
Trust the above clarifies the tax implications in respect of dividend income of a non-resident.
