Tax on DIVIDENDS FOR NON RESIDENT

Great question, Manas! Here’s a detailed explanation on tax on dividends for non-residents and TDS rates under sections 115A and 195:

1. Section 115A (Dividend Tax for Non-Residents):

• Section 115A mandates that dividends received by a non-resident from Indian companies are taxable at a flat rate of 20% plus applicable surcharge and cess.

• This is a special rate for non-residents on dividends, overriding the normal slab rates.

2. Section 195 (TDS on Payments to Non-Residents):

• Section 195 requires tax deduction at source (TDS) on payments made to non-residents, including dividends.

• The TDS must be deducted at the rates in force as per the Finance Act for that financial year or as per DTAA (Double Taxation Avoidance Agreement) if applicable.

3. What if TDS Rate under Section 195 is Higher than Section 115A Rate?

• If TDS is deducted at a higher rate than the prescribed rate under section 115A, the non-resident can claim a refund of excess TDS by filing an Income Tax Return.

• The final tax liability will be governed by section 115A rate (20%) + surcharge + cess.

• The TDS deducted is a prepaid tax and can be adjusted against the actual tax liability.

• Thus, excess TDS can be claimed back as refund.

4. TDS Rate on Dividend under Section 195 for FY 2021-22:

• The Finance Act, 2021 (applicable for FY 2021-22) prescribes TDS on dividends at 20% for non-residents, matching section 115A.

• However, in some cases, if no specific TDS rate is provided, the default TDS rate is 30% for non-residents, subject to DTAA benefits.

• In practice, the TDS rate on dividends for non-resident shareholders was 20%, consistent with section 115A.

• DTAA benefits may reduce the TDS rate further if applicable.

Summary:

Conclusion:

• The TDS rate for dividend under section 195 for FY 2021-22 was 20% for non-residents.

• If more TDS is deducted than 20%, the non-resident can claim a refund.

• The final tax liability is based on section 115A.