US side: withholding at source
- A US C-Corp pays federal corporate tax (21%) on its profits first; dividends come out of after-tax profits.
- Dividends paid to foreign shareholders are subject to US withholding — 30% by default.
- The India–US treaty reduces this to 15% where the beneficial owner is a company holding at least 10% of the voting stock (typical for an Indian parent), and 25% in other cases — including individual founders.
- To get the treaty rate, shareholders give the company a W-8BEN (individuals) or W-8BEN-E (entities) claiming treaty benefits. See the W-8BEN-E guide.
US forms the company files
- Form 1042-S to each foreign shareholder, and Form 1042 (the annual withholding return) — both due by 15 March after the year of payment.
- The tax withheld is deposited with the IRS on the prescribed schedule.
- The dividend is a reportable transaction with a foreign related party on Form 5472.
India side: tax and credit
- Resident individuals are taxed on foreign dividends at their normal slab rates.
- Indian companies receiving dividends from a US subsidiary are taxed at their applicable corporate rate.
- Foreign tax credit: the US tax withheld can be credited against the Indian tax on the same income (up to that Indian tax), by filing the prescribed statement (with a return filed on time) — Form 67 for income up to FY 2025-26 and Form 44 from FY 2026-27. See the India–US DTAA guide.
- Report the dividend in the foreign-income schedules and keep the shareholding in Schedule FA.
FEMA: bring it home
Under the Overseas Investment Rules, 2022, a person resident in India with an overseas direct investment must — unless the amount is reinvested — realise and repatriate dividends and other dues from the foreign entity within 90 days of the date they fall due. The dividend also flows into the next Annual Performance Report.
A worked example
An Indian company owns 100% of a Delaware C-Corp, which declares a $100,000 dividend.
- US withholding at the treaty rate of 15%: $15,000; the Indian parent receives $85,000.
- In India, the full $100,000 (in rupees) is taxable income of the parent; the $15,000 withheld is available as a credit against the Indian tax on it, subject to the credit rules.
- The $85,000 must reach India within 90 days of the dividend falling due, and the Form 1042-S is filed by the US company by 15 March.
For an India-resident individual founder the same dividend would face 25% US withholding under the treaty, with credit against their Indian tax.
Alternatives to dividends
- Payment for services or IP from the Indian parent to the US subsidiary, priced at arm’s length — see transfer pricing.
- Repaying a loan the parent made to the subsidiary — see intercompany loans.
- Retaining profits in the US to fund growth — remembering the FEMA rules on dues and reinvestment.
Each route has different tax and FEMA consequences; model them together.
Frequently asked questions
What is the US withholding tax on dividends paid to India?
30% by default, reduced under the India–US treaty to 15% where the beneficial owner is a company holding at least 10% of voting stock, and 25% in other cases, provided the shareholder gives a valid W-8BEN or W-8BEN-E.
Are US dividends taxable in India?
Yes. Resident individuals are taxed at their slab rates and Indian companies at their applicable corporate rate, with credit for US tax withheld by filing Form 67 (up to FY 2025-26) or Form 44 (from FY 2026-27).
How soon must a dividend from a US subsidiary be brought to India?
Under the Overseas Investment Rules, 2022, dues such as dividends from a foreign entity in which there is ODI must be realised and repatriated within 90 days of the due date, unless reinvested.
Which US forms does the company file when paying a foreign dividend?
Form 1042-S to each foreign recipient and the annual Form 1042, both due by 15 March of the following year; the payment is also reported on Form 5472.
Please note: this guide is general information based on the rules as they stood on the review date above. Regulations and RBI/CBDT procedures change often — please get advice on your specific facts before acting.