DIVIDEND RECEIVED FROM SINGAPORE COMPANY TO INDIAN RESIDENT

Great question about dividend income from a foreign company (Singapore) received by an Indian resident! Here’s a detailed explanation:

Situation Recap:

• Mr. A is an Indian resident.

• He owns a Singapore-incorporated company.

• The company earned profits and paid Singapore tax.

• Mr. A withdrew SGD 40,000 from the company and received it in India.

Key Tax Points on Dividend from Foreign Company to Indian Resident:

1. How is the amount withdrawn treated in India?

• Dividend income: If the amount withdrawn by Mr. A is a dividend (i.e., distribution of profits), then it will be treated as dividend income in India.

• If the amount withdrawn is a return of capital or loan, different tax treatment applies.

• Assuming it’s dividend (profit distribution), it is taxable in India.

2. Is Dividend Income Taxable in India?

• As per Indian Income Tax Act (Section 115BBDA, Section 10(34) earlier, now dividend income is taxable in hands of shareholder except dividend from domestic companies where DDT was applicable).

• Dividend income from a foreign company is taxable at normal slab rates applicable to the individual.

• So, not flat 10%, but at the individual’s applicable income tax slab.

3. Double Taxation Avoidance Agreement (DTAA) between India and Singapore

• India and Singapore have a DTAA to avoid double taxation.

• Under the DTAA, dividend income may be taxed in both countries but with certain limits.

• Article on Dividends in India-Singapore DTAA typically allows:

  • The source country (Singapore) to tax dividend at a reduced rate (usually 10%).

  • India as the residence country to tax dividend income but provide credit for taxes paid in Singapore.

• Hence, the dividend income is taxable in India, but Indian resident can claim credit for taxes paid in Singapore on that dividend to avoid double taxation.

4. Is Dividend Income Exempt under DTAA?

• The income is not exempt, but the DTAA limits the rate of withholding tax in Singapore and allows credit of tax paid.

• Indian resident taxpayer must include this dividend income in their total income and pay tax at slab rate.

• However, credit of tax paid in Singapore can be claimed while filing Indian tax return (Form 67).

Summary:

What Mr. A Should Do:

• Report dividend income of SGD 40,000 (converted to INR) under income from other sources or business income (if applicable) in ITR.

• Claim Foreign Tax Credit (FTC) for tax paid in Singapore.

• Maintain documentation: dividend receipt, tax payment proof in Singapore, and Form 67 for FTC claim.