What changed in India?
Until FY 2019-20, dividends were exempt for shareholders (DDT paid by company). From April 2020, dividends taxed in shareholder's hands at slab rates. TDS @ 20% (10% with DTAA TRC + Form 10F) for NRIs.
How does the US tax Indian dividends?
For US tax residents, Indian dividends are fully taxable as ordinary dividends on Schedule B and Form 1040.
Qualified for a lower 15-20% rate? Indian dividends generally qualify ONLY IF the company is a "qualified foreign corporation" — typically ADRs on a US exchange (Infosys ADR, ICICI Bank ADR, HDFC Bank ADR). Direct Indian-listed holdings often don't qualify.
For non-qualified, US tax = ordinary rate (up to 37%).
DTAA rate on Indian dividends
India-US DTAA Article 10 caps Indian WHT on dividends to US residents at:
- 15% if owning < 25% voting power
- 25% if owning 25%+
To claim 15% rate, submit TRC + Form 10F to the Indian payer/registrar.
Foreign Tax Credit
Indian TDS (10% with DTAA, 20% without) creates FTC on Form 1116, passive basket.
Worked example
₹1,00,000 dividend from Reliance/TCS FY 2025. USD ~$1,200.
Indian tax: TDS 10% (with DTAA TRC) = $120 US tax (24% bracket): $1,200 × 24% = $288 (ordinary, non-qualified) FTC available: $120 Net US tax: $168
If qualified (via ADR): $1,200 × 15% = $180 US tax. Same FTC. Net $60.
Mutual fund dividends — PFIC issue
If from an Indian mutual fund, NOT reported as a simple dividend — reported per PFIC rules on Form 8621. Different ballgame, often punitive default treatment unless MTM elected.
Reinvested dividends (DRP)
Dividend reinvestment plans where dividends auto-buy more units — still taxable in the declaration year, even though no cash received.
Common Indian dividend mistakes
- Treating all dividends as qualified at 15%
- Missing reinvestment in tax reporting
- Wrong exchange rate (use payment-date rate)
- Forgetting FTC on Form 1116
- Not claiming DTAA TRC reduced TDS rate
What about the TDS refund?
If TDS at 20% deducted but the actual Indian tax is lower, claim a refund by filing ITR-2.
Practical advice
- Hold Indian equity via ADRs if long-term US resident — cleaner tax
- Submit TRC + Form 10F at the start of each Indian FY to the demat broker for reduced TDS
- Track reinvestments as taxable events
- Use FX rate consistently
Explore our complete US Tax Return Guide to understand refunds, filing rules, and IRS procedures for NRIs.