TDS on Dividend Paid to an NRI Shareholder

Dividend paid to an NRI shareholder attracts 20% TDS under Section 393(2), which is typically higher than the domestic resident dividend rate — but a DTAA can meaningfully reduce it.

FY 2026-27 · Section 393(2)

Quick answer

Indicative rate

20%

Section & code

Section 393(2), Sl. No. 17, Code 1057

Forms typically needed:

Form 15CA Form 15CB if above threshold

Cross-Border TDS Decision Helper

Nature of payment

Payee has valid PAN?

TRC + Form 41 furnished?

Indicative Act rate

20%

Domestic Act rate under Section 393(2) for royalty/FTS to a non-resident non-company — doubled from 10% by Finance Act 2023 (effective 1 April 2023), unchanged since. Classify carefully: royalty and FTS have different treaty definitions.

Without a TRC and Form 41, the treaty rate can't be applied — the Act rate above governs until documentation is furnished.

This is a decision aid, not a filing determination — always confirm classification and the exact treaty article with a professional before remitting.

Why the NRI dividend rate is higher than the resident rate

Dividend paid to a resident shareholder is subject to TDS under a specific domestic code at a comparatively modest rate above a threshold. Dividend paid to an NRI shareholder, by contrast, falls under the general non-resident Section 393(2) framework at 20% — a materially higher rate than the resident dividend TDS rate, and one that applies without the threshold exemptions available domestically.

This gap makes DTAA documentation particularly valuable for NRI shareholders receiving meaningful dividend income, since many of India's treaties specify a dividend article rate below 20%, sometimes with a lower rate still if the recipient holds a specified minimum shareholding (a common structure in treaties to encourage genuine long-term investment over portfolio holdings).

Beneficial ownership and minimum-shareholding conditions

Dividend articles in many treaties attach conditions beyond simple tax residency — a 'beneficial ownership' requirement (the recipient must be the genuine economic owner of the dividend, not merely a conduit), and sometimes a tiered rate structure offering a lower rate for shareholders crossing a specified minimum shareholding percentage (reflecting a direct-investment relationship) versus a higher rate for smaller portfolio holdings. NRI individual retail shareholders typically fall into the portfolio-holding tier, while an NRI holding a substantial stake in a closely-held company may qualify for the lower direct-investment rate.

Company dividends vs. mutual fund/other distributions

This page concerns dividend from an Indian company's shares specifically. Distributions from mutual funds, real estate investment trusts (REITs), or other pooled vehicles to NRI investors can have their own separate classification and rate considerations — don't assume the same 20% company-dividend treatment automatically extends to every kind of distribution an NRI might receive from an Indian investment.

What the paying company needs on file

Indian companies paying dividend to NRI shareholders should collect TRC and Form 10F from each such shareholder (typically as part of the registrar/depository's KYC process ahead of the dividend record date) to apply any available lower treaty rate — without this documentation on file by the time the dividend is processed, the company must default to the 20% domestic rate for that shareholder, even if a lower treaty rate would otherwise have applied.

Worked example

Dividend to an NRI retail shareholder resident in Canada

An Indian listed company pays ₹2,00,000 in dividend to an NRI shareholder resident in Canada, holding a small portfolio stake (below the treaty's minimum-shareholding threshold for the lower rate). Absent DTAA documentation, 20% TDS (₹40,000) applies. If the shareholder furnishes a valid Canadian TRC and Form 10F before the dividend record date, the India-Canada DTAA's dividend article rate (checked against the actual treaty text, and against the applicable shareholding tier) may apply instead, potentially reducing the deduction.

Common mistakes & litigation traps

Assuming the domestic resident dividend rate applies to NRI shareholders

The much higher 20% non-resident rate applies instead — companies with a mixed resident/NRI shareholder base must apply the correct rate per shareholder, not a single blanket rate.

Missing the minimum-shareholding tier in a treaty's dividend article

Some treaties offer a lower rate only above a specified shareholding percentage — applying the lower rate to a portfolio-level NRI shareholder who doesn't meet that threshold is incorrect.

Not collecting TRC/Form 10F before the dividend record date

Documentation must be on file at the time of the dividend distribution — a shareholder furnishing it afterward doesn't retroactively reduce the tax already withheld.