How US Dividends Are Taxed for Indian Investors — and What You Actually Keep

A US company pays your dividend after the US has already taken its cut. India then taxes the same dividend again as part of your income. The India–US tax treaty and India's foreign tax credit stop this from being a full double hit, but only partly: the credit you get is the lower of the US tax paid and the Indian tax on that income.

In practice that means your total tax on a US dividend is the higher of the two layers, not the sum. If your Indian slab rate is at or below roughly 24%, the US 25% is the bigger number and is what you effectively pay. If you are in the 30% slab, India's 31.2% (30% plus 4% cess) is the bigger number, so you pay the US 25% and then top up about 6.2% in India.

The US withholds tax on dividends paid to non-US residents before the money reaches your broker. The default statutory rate is 30%. Under the India–US treaty the rate for an individual investor is 25%. You get the 25% rate by filing a W-8BEN form with your broker, which most brokers collect when you open the account, and which needs renewing periodically. Without a valid W-8BEN, expect 30% to be withheld.

The treaty's lower 15% rate is for a company that owns at least 10% of the paying company's voting stock. It is not available to an individual buying shares on a brokerage app.

For an Indian tax resident, foreign dividends are added to your income and taxed at your slab rate, with no special lower rate. The 4% health and education cess applies on top, and surcharge applies at higher income levels. You report the gross dividend (before the US deduction), not the smaller amount that landed in your account.

To avoid paying the same income twice, you claim a foreign tax credit. Under Rule 128 of the Income-tax Rules the credit is the lower of the tax payable in India on that income and the foreign tax actually paid. You claim it by filing Form 67 on the income tax portal, due by the end of the relevant assessment year (with your return filed in time), and then report the income and credit in the Schedule FSI and Schedule TR of your ITR. Filing Form 67 together with your return, before the ITR due date, is the safest habit.

One point is genuinely unsettled: how the Indian tax on the dividend is computed for the cap when you also have other income. The simple approach, used by the calculators on this site, treats the dividend as taxed at your top (marginal) slab rate. Practitioners differ on whether an average rate should be used instead. If you have large other income or a borderline slab, this is worth a conversation with a chartered accountant.

The table assumes a W-8BEN is on file (25% US withholding), the credit is claimed, and ignores surcharge. The last row shows the 30% slab without a W-8BEN.

A 4% gross yield becomes 3.0% after tax for someone in the 5% or 20% slab and about 2.75% in the 30% slab. That is before any currency movement between the dollar and the rupee.

It also sets dividends apart from price growth. Dividends are taxed every year as they arrive, at up to 31.2%. A gain on a US stock held more than 24 months is taxed only when you sell, at a flat 12.5%. That is a tax-timing and tax-rate difference, not a recommendation for or against dividend stocks; it simply means the headline yield overstates what a high-slab investor keeps, and the after-tax figure is the fairer one to compare against alternatives like a fixed deposit.

REIT dividends (for example Realty Income or Public Storage) get the 25% treaty rate for an individual who holds under 10% of the REIT, which any retail investor does. But a REIT payout can be made up of ordinary income, return of capital and capital gains, and each part can be treated differently for US withholding and for Indian tax. Treat any net-yield figure for a REIT as indicative.

It does not cover capital gains on selling US stocks, Schedule FA reporting, TCS on remittances, NRIs (who face a different regime) or US-domiciled ETFs. See the linked guides for those. Tax rules change and individual situations differ; this is general information, not tax advice.