Foreign Dividends Income Tax Under ITA 2025: US Stocks, DTAA, Form 67 & Schedule FA

1. Foreign Dividends: Globally Taxable for Indian Residents

Indian residents (ROR status) are taxed on their global income -- this includes dividends received from companies listed or incorporated abroad. As Indian investors increasingly access international equity markets through LRS (Liberalised Remittance Scheme) investments, US stocks via GIFT City, international mutual funds, and NRE FD investments in foreign shares, foreign dividends are becoming a significant income category. Understanding how they are taxed, how double taxation is avoided, and how to correctly report them in the ITR is increasingly important for the globally invested Indian taxpayer.

2. Tax Treatment of Foreign Dividends

Foreign dividends received by Indian ROR residents are treated as follows under ITA 2025:

• Taxable as income from other sources at the recipient slab rate
• No special rate or exemption -- unlike domestic dividends which may have Section 80M protection in a holding company context, foreign dividends have no such relief for individual investors
• The full gross dividend (before any foreign withholding tax) is included in Indian income
• Foreign tax credit (Form 67) is then available to reduce double taxation

3. DTAA Rates on Foreign Dividends

Most countries impose withholding tax on dividends paid to non-residents. India DTAAs set maximum withholding rates:

• USA: 25% withholding tax under India-USA DTAA (reduced from 30% domestic rate); for portfolio investors: 15% DTAA rate is available
• UK: 15% withholding under India-UK DTAA
• Singapore: 10% withholding under India-Singapore DTAA
• UAE: India-UAE DTAA -- UAE does not impose withholding (no corporate income tax)
• To access DTAA rates: the Indian investor must submit a Tax Residency Certificate (TRC) and Form 10F to the foreign company paying the dividend. For listed stock holdings through brokers, the custodian bank typically handles DTAA rate applications.

4. Foreign Tax Credit: Preventing Double Taxation

Since foreign dividends are taxed both by the source country (withholding tax) and India (at slab rate), double taxation would result without relief. The foreign tax credit mechanism provides relief:

• File Form 67 on the IT Portal before filing ITR or simultaneously with ITR
• Claim credit for taxes paid abroad on the foreign income
• Credit is limited to: the tax computed on the foreign income in India
• Example: US dividend USD 1,000 (approx Rs 84,000). US withholds 15% = USD 150 (Rs 12,600). Indian tax at 30% on Rs 84,000 = Rs 25,200. Foreign tax credit = Rs 12,600. Net Indian tax additional liability = Rs 25,200 - Rs 12,600 = Rs 12,600.
• If foreign tax rate exceeds Indian effective rate: credit is limited to Indian tax -- no refund for excess foreign tax

5. US Stocks: The Most Common Scenario

Indian investors buying US stocks (Apple, Google, Microsoft, Tesla) through LRS or GIFT City IFSC entities:

• US dividend withholding: 30% for non-US persons (without W-8BEN) or 15% with India-USA DTAA (with W-8BEN submitted)
• Form W-8BEN: must be submitted to broker to claim 15% DTAA rate; failure means 30% withholding
• Indian tax on US dividends: slab rate (up to 30%)
• Foreign tax credit on 15% withheld: partially offsets Indian tax
• Reporting: Schedule OS (other sources) in ITR; Form 67 for FTC claim; Schedule FA for foreign asset disclosure

6. Section 115BBD: Specified Foreign Company Dividends

Section 115BBD provides a concessional 15% tax on dividends received from "specified foreign companies" (Indian companies holding 26%+ stake in a foreign company). This is targeted at Indian holding companies with strategic foreign subsidiaries, not portfolio investors. For most individual investors with portfolio investments abroad, the regular slab rate applies -- Section 115BBD is not applicable.

7. Foreign Dividends Through Mutual Funds

Many Indian investors access foreign dividends indirectly through international mutual funds (Mirae Asset NYSE FANG+, Franklin India Feeder US Opportunities, DSP US Flexible Equity):

• Dividends within the international fund: the fund handles dividend reinvestment internally
• IDCW (dividend) from the mutual fund to Indian investors: taxable at slab rate (all mutual fund IDCW is slab rate)
• Capital gains on redemption of international fund units: slab rate (these are "specified mutual funds" per Finance Act 2023 -- same as debt fund treatment)
• Double taxation relief is generally handled at the fund level for investors in the fund

8. GIFT City IFSC Route for Foreign Stock Investment

Indian investors accessing foreign stocks through GIFT City IFSC entities:

• GIFT City brokerage/trading: legal, FEMA-compliant route for foreign stock investment within India
• Dividends from foreign stocks through GIFT City route: same tax treatment as direct LRS investments
• Advantages: settled in INR; no need for separate LRS remittance; within India regulatory framework
• Tax treatment is identical to direct foreign stock holdings -- foreign dividends at slab rate, FTC on foreign withholding

9. Schedule FA: Mandatory Disclosure

Indian residents (ROR) holding foreign shares must disclose them in Schedule FA (Foreign Assets) of the ITR:

• Peak balance held during the year; opening and closing balance
• Dividends received from each foreign holding
• Any capital gains on foreign asset sales
• Non-disclosure of foreign assets: penalty under the Black Money Act 2015 of Rs 10 lakh per asset per year -- extremely serious
• Even small US stock holdings (a few hundred dollars) require Schedule FA disclosure

10. Practical Reporting Steps

For an Indian investor with US stock dividends:

1. Obtain annual account statement from US broker (Schwab, IBKR, etc.) or Indian broker offering US stocks
2. Identify total dividends received in USD; note withholding tax deducted
3. Convert to INR using RBI reference rate on date of receipt (or RBI annual average rate if multiple receipts)
4. Report gross INR dividend in Schedule OS (other sources income) of ITR
5. File Form 67 claiming credit for US withholding tax; attach evidence of withholding (broker statement)
6. Complete Schedule FA with all foreign holding details

11. Why TaxClue

Foreign dividend taxation -- DTAA rate application, Form 67 FTC filing, Schedule FA compliance, and W-8BEN management -- requires international tax expertise. TaxClue handles ITR filing for globally invested Indian residents. Contact us under ITA 2025.