By Anshu Khanna
Dividends received by Indian residents are charged under the category ‘Income from other sources’. Hence, a dividend that is received from a foreign company will be included in the taxpayer’s total income and will be taxable at the income tax rate applicable to the taxpayer.
Dividends, interest, and capital gains (actual), earned outside India will be taxed in India as per the provisions of the Act (Section 56 & section 45 of the Act) in the hands of an individual if he is a ROR in India in the year of accrual of such accretions (as worldwide income is taxable in India in the hands of ROR taxpayers). The said income may not be taxed in India in the case of an RNOR and an NR, as they are only taxed in India in respect of income that is accruing or arising or received in India or which is deemed to accrue, arise, or be received in India.
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There are various judicial precedents ( CIT v. A.P. Kalyanakrishnan (195 ITR 534) (MAD HC); CIT v. V.K. Vasudevan Pillai (89 Taxman 73) (KER HC); 94 Taxman 157 (New Delhi – AAR), in the context of income earned outside India, in which it has been held that income remitted to and received by an RNOR / NR shall not be taxable in India since the same has accrued outside India. The Indian Courts have ruled in favor of the taxpayers stating that since the income has not accrued or arisen in India to the RNOR, it is not taxable in India.
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Gains/ Dividend from US stock is taxable in India and US both. This may lead to a rise in the situation of ‘Double taxation’ in the hands of taxpayers. However, one can seek tax relief under the provisions of the Double Tax Avoidance Agreement (DTAA) if the applicability and criteria of eligibility of the DTAA meet up with what the Indian Government has with other nations’ Governments.
(Author is Partner-US Corridor, Nangia Andersen LLP)
