Non-residents of India (NRIs) often wonder about their payable taxes in several fields when they start living abroad. When they move to another country, everything changes for them. However, they enjoy all the benefits and rights reserved by the government in India. Subsequently, they can have a bank account in India even though their residential status gets changed. But the procedure becomes slightly different, and so does the investment opportunities and payable taxes.
Suppose you are such an NRI who lives overseas and runs a business and maintain non-resident external and non-resident ordinary bank accounts to invest in fixed deposits and equities of Indian companies. In that case, you must know how you will be taxed for the dividend earned each year in India. Any interest earned from your NRO bank account is taxable in India. However, if you are a ‘resident’ of the other country and the tax residency certificate provided by that country’s income tax authorities is available, your tax rate against the interest income may be lower according to provisions of the double taxation avoidance agreement between India and your host country.
Another option that you can follow and avail of a deduction of Rs 10,000 on the interest earned from NRE bank accounts under Section 80TTA. As per the exchange control law, interest income from savings and fixed deposit bank accounts is exempt from tax in India, provided you qualify as a “person resident outside India”.
From FY21, any dividend income from shares of an Indian company has been made taxable in India. In India, if your residential status is ‘non-resident’ under the Indian IT Act, you’re liable to pay 20% of tax on your dividend income plus applicable surcharge and health and education cess of 4% based on gross.
Your applicable tax rate on dividend income will vary between 20.8% and 28.5%, however, based on the level of your total income and surcharge. Henceforth, your dividend income earned in India will be taxable at 20% plus applicable surcharge and 4% health and education cess, depending on gross.