Summary: The article explains that dividends from US shares received by an Indian Resident and Ordinarily Resident are subject to US withholding tax and are also taxable in India as part of global income. Under the India–US DTAA, the US withholding on dividends is capped at 25% when the W-8BEN form is furnished, and India provides relief through Foreign Tax Credit (FTC) under Section 159 of the Income-tax Act, 2025 (corresponding to Section 90 of the Income-tax Act, 1961 read with Rule 128 of the Income-tax Rules, 1962 for FY 2025-26). An illustration shows that Indian tax is reduced by the FTC, subject to the Indian tax payable on the dividend, with excess foreign tax credit not available where the Indian tax liability is lower. The article also distinguishes dividend taxation from capital gains, stating that the 25% withholding applies only to dividends, while gains on foreign shares follow separate rules based on the holding period. It further advises taxpayers to obtain the broker’s tax statement, file Form 44 (or Form 67 for FY 2025-26), disclose foreign assets in Schedule FA, and notes that under the Income-tax Rules, 2026, CA certification is required where FTC claimed exceeds INR 1 lakh.
“I invested in Apple and Microsoft through an app. When the dividend came, a chunk had already vanished to US tax. Now my CA says I still have to show it in India. So I pay 25% there AND tax here?” — a young investor who thought foreign stocks would be simpler than they are.
Owning a slice of US companies has never been easier, and dividends are lovely — until you see that the US has already helped itself to a quarter of them before the money reaches you. The worry that you will be taxed a second time in India is understandable, but the system is built to prevent exactly that. Here is how the India–US dividend story actually works.
A quick note on the law: from 1 April 2026 the Income-tax Act, 2025 governs your income (Tax Year 2026-27 onwards), and that is the law I use below. The old Income-tax Act, 1961 still matters only when you file the return for FY 2025-26. The good news is that the principles of cross-border relief have not changed — only some section and form numbers have. Where it helps, I give the FY 2025-26 equivalents under the Income-tax Act, 1961 in brackets alongside the new-law references.
Why the US takes 25% first
The US levies a withholding tax on dividends paid to foreign investors. The default rate is 30%, but the India–US DTAA caps it at 25% for Indian residents — and your broker applies that lower treaty rate automatically when you sign the W-8BEN form during account opening. That is why you see roughly 25%, not 30%, disappear. This 25% is a final US tax on the dividend; you do not file a US return for it.
How India taxes the same dividend
If you are a Resident and Ordinarily Resident, India taxes your global income (Section 6 of the Income-tax Act, 2025; the same Section 6 under the Income-tax Act, 1961 for FY 2025-26), so the US dividend is added to your total income and taxed at your slab rate. For a resident in the highest bracket that is 30% plus surcharge and cess; for someone in a lower bracket it may be 5–20%. Foreign dividends do not get any special lower rate — they are ordinary income.
So yes, the same dividend appears in both countries. But India then lets you subtract the US tax you already paid, through the Foreign Tax Credit under Section 159 of the Income-tax Act, 2025 (for FY 2025-26, the same relief runs through Section 90 of the Income-tax Act, 1961 read with Rule 128 of the Income-tax Rules, 1962, since India and the US have a DTAA).
Let’s understand this concept with a practical example:
Suppose Meera, an ROR, receives a gross US dividend of $1,000. The US withholds 25% = $250, so $750 lands in her account. Using an assumed rate of INR 86 per USD:
| Particulars | In USD | In INR (@86) |
| Gross dividend (this is what India taxes) | $1,000 | 86,000 |
| US tax withheld at 25% (DTAA rate) | $250 | 21,500 |
| Amount actually received | $750 | 64,500 |
| Indian tax at Meera’s 30% slab on INR 86,000 | — | 25,800 |
| Less: Foreign Tax Credit (US tax paid) | — | 21,500 |
| Net Indian tax payable on the dividend | — | 4,300 |
Exchange rate is illustrative; use the prescribed telegraphic-transfer buying rate on the relevant date.
Meera’s total tax on this dividend is INR 21,500 (US) + INR 4,300 (India) = INR 25,800 — exactly the Indian tax on INR 86,000, and not a rupee more. The credit does its job. Now imagine Meera were instead in the 20% slab: her Indian tax would be INR 17,200, which is less than the INR 21,500 already paid to the US. In that case her FTC is capped at INR 17,200 (she cannot claim more Indian credit than her Indian tax), and the extra US tax is simply lost — a real cost of the US’s flat 25% for lower-bracket investors.
Don’t forget: capital gains are taxed differently
The 25% withholding applies only to dividends. When you sell US shares at a profit, the US generally does not tax that gain for a non-resident investor — but India does. Gains on foreign shares held over 24 months are long-term; shorter holdings are short-term and taxed at slab rates. Keep dividend tax and capital-gains tax mentally separate; they follow different rules.
What you must actually do to claim the credit
- Collect your broker’s year-end tax statement (often a Form 1042-S or a consolidated statement) showing gross dividend and US tax withheld.
- File Form 44 (successor to Form 67) on the e-filing portal before filing your ITR — for FY 2025-26 the relevant form is still Form 67 (filed under Rule 128 of the Income-tax Rules, 1962) — no form, no credit.
- Remember the Schedule FA (Foreign Assets) disclosure: as a resident you must report your foreign shares and accounts in your return. This is separate from tax and non-disclosure carries heavy penalties.
- If total foreign tax credit claimed exceeds INR 1 lakh, a CA certification is now required under the Income-tax Rules, 2026. For FY 2025-26 the Income-tax Rules, 1962 apply, and Form 67 carried no such ₹1 lakh certification threshold.
So, to answer the panic: you are not taxed twice. You pay US tax once, Indian tax tops it up only to the extent India’s rate is higher, and the credit closes the gap. What trips investors up is not the tax — it is forgetting Form 44 and the foreign-asset disclosure. Get those right and your global portfolio stays clean.
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About the author: Sonia Dawar is a practising Chartered Accountant and the founder of Dawar & Co. She advises resident and non-resident clients on cross-border taxation, DTAA relief and foreign tax credits, and has a reputation for turning tangled international tax problems into plain, do-this-next answers. Have a cross-border tax question of your own? Reach her at sonia@dawarandco.com.
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