However it is to be noted that most of the treaties state that subject Article of Dividend Income shall be applicable only if recipient is also a beneficial owner.

Further in certain DTAAs, two rates have been agreed wherein a further favorable rate is provided for recipient holding shares above a specified percentage. Most of the treaties that India has entered provides beneficial rates than the rate as per Income Tax Act (As mentioned above). Withholding tax rate to be applied u/s 195 is always the beneficial rate amongst the rate as per Income Tax Act or rate as per DTAA. TDS (Dividend ₹ 50 lakhs but ₹ 1 crore but ₹ 10 crores)Ĭontact Author with exact constitution of RecipientĪnalysis of DTAA Provisions for Dividend Taxable in the hands of Non-Residents:. TDS rate applicable on payments of Dividend Category of Dividend Recipient Thus TDS rate applicable on payments of Dividend shall be as below:. Withholding Tax Rate (Part II of The First Schedule)įurther in the Finance Bill, 2020 passed by Lok Sabha on 23 rd Mar, 2020 it has been clarified that maximum surcharge applicable on said Income shall be 15%. The summary of rates provided in Finance Bill, 2020 as passed by Lok Sabha on 23 rd Mar, 2020 is as below:- Category of Dividend Recipient Thus one need to check rates specified in Finance Act for withholding taxes on dividends being distributed to Non-Resident (not being a company) or to a foreign company. “for the purposes of deduction of tax under section 194LBA or section 194LBB or section 194LBC or section 195, the rate or rates of income-tax specified in this behalf in the Finance Act of the relevant year or the rate or rates of income-tax specified in an agreement entered into by the Central Government under section 90, or an agreement notified by the Central Government under section 90A, whichever is applicable by virtue of the provisions of section 90, or section 90A, as the case may be.” Section 195 states that TDS is to be deducted on “Rates in force” which is defined in Section 2(37A) which provides that:. However same is not the rate on which tax is to be withheld. Kindly note in this respect that although Section 115A and Section 115AD, Tax rate applicable on Dividend Income is 20%. Analysis of Income Tax Provisions for Dividend Taxable in the hands of Non-Residents:. In this article, Author is restricting the discussion only in respect to withholding to be done in case of Non-Resident Investors other than those covered u/s 196D. One of the issue which is under discussion is the situation wherein Section 196D is applicable then whether benefit of DTAA can be given or not since unlike Section 195 where it is mentioned that TDS is to be deducted at Rates in force which also include rate as per Section 90 / 90A, Section 196D simply provides the rate of 20%. Thus now companies will be liable to deduct TDS under following sections:- Particularsĭividend payments to Non Residents excluding Foreign Institutional Investorsĭividend payment to Foreign Institutional Investors Abolition Of Dividend Distribution Tax (DDT) – A Compliance Burdens When It Comes to TDS Of Non-Resident Investorsįinance Act, 2020 has abolished DDT regime under which Dividends paid by Domestic Company were exempt in the hands of receivers (including Non-Residents).

Aif tads