Dividend Declaration Process
Dividends from an Indian Private Limited Company can only be declared from the current year's profits or from accumulated undistributed profits, after providing for depreciation and meeting any required reserves. Section 123 of the Companies Act 2013 governs dividend declaration. Before declaring a dividend, the company must: complete its statutory audit, pay all corporate taxes (advance tax and any balance due), and comply with any restrictions on dividend payment in its articles of association.
The board of directors recommends an interim or final dividend. For a final dividend, shareholder approval (ordinary resolution) at the AGM is required. The dividend must be deposited in a separate bank account within 5 days of declaration and paid within 30 days of declaration.
Withholding tax (TDS) must be deducted from the dividend before payment. For dividends paid to a foreign parent (non-resident), Section 194 requires TDS at 20% under domestic law. If a DTAA applies and the parent qualifies for the treaty rate, the applicable withholding rate may be lower.
DTAA Withholding Rates on Dividends
India has Double Tax Avoidance Agreements with 90+ countries that typically reduce the withholding tax on dividends from the domestic rate of 20% to a treaty rate of 5-15%. To claim the treaty rate, the foreign parent must provide a Tax Residency Certificate (TRC) from its home country and Form 10F (declaration of treaty claim) to the Indian company before the dividend is paid.
Key DTAA dividend rates: USA: 15% (or 25% for holdings under 10% of voting capital); UK: 10% (or 15% for smaller holdings); UAE: 5% (no withholding on dividends under India-UAE DTAA Article 10 for substantial holdings); Singapore: 10%; Germany: 10%; Netherlands: 5% for 10%+ holdings.
After deducting withholding tax, the Indian company must remit TDS to the Income Tax Department by the 7th of the following month and issue Form 16A (TDS certificate for non-residents) to the foreign parent. The parent can use this to claim the withheld tax as a credit in its home country (subject to DTAA credit provisions).
Indicative DTAA withholding rates on dividends from India
| Country | Treaty Rate (10%+ holding) | Domestic Rate if No Treaty |
|---|---|---|
| USA | 15% | 20% |
| UK | 10% | 20% |
| UAE | 5% | 20% |
| Singapore | 10% | 20% |
| Germany | 10% | 20% |
| Netherlands | 5% | 20% |
| Japan | 10% | 20% |
| Canada | 15% | 20% |
The Remittance Process: 15CA/15CB
Remitting dividend abroad requires: (a) Board resolution declaring the dividend, (b) shareholder resolution (for final dividend), (c) TDS payment to Income Tax Department, (d) Form 15CB from a CA certifying that taxes have been correctly deducted, (e) Form 15CA (online submission by the company) on the income tax e-filing portal, and (f) submission of 15CA and 15CB to the bank along with the A2 form and swift instructions.
The bank will not process a foreign remittance without the 15CA/15CB. Processing time at the bank for a dividend remittance: 3-5 working days after all documents are submitted. For remittances above USD 5 million, some banks require additional review by their FEMA compliance team.
Glossary terms referenced in this guide