As more Indian investors tap into global markets, investing in US stocks from India is becoming an increasingly popular option. While most focus on capital growth from companies like Apple, Microsoft, or Google, there’s another powerful income stream many overlook: dividends.
Dividends offer a steady way to earn passive income, and the good news is, Indian residents can legally receive and reinvest dividends from US stocks. However, the process, tax treatment, and reinvestment options differ from what you might be used to in Indian markets. Here’s what you need to know.
How Dividends from US Stocks Are Received in India
When a US-listed company declares a dividend, it’s paid out in US dollars to all shareholders, including those in India. If you own shares through a broker that allows US stock investment from India, the dividend is automatically credited to your brokerage account in USD.
You don’t need to apply or file anything to “receive” it – it’s a direct payout, typically processed on the payment date declared by the company.
However, Indian investors should note that dividends from US companies are subject to taxes at source in the US before they reach your account. This withholding tax is typically 25%.
What Taxes Apply to US Stock Dividends in India?
Here’s where it gets important. The US government applies a 25% withholding tax on dividends paid to foreign investors, including Indians. This means if a company pays you $100 in dividends, only $75 will land in your account after tax.
But that’s not the end of the story – you’ll still need to report this income in India.
India taxes foreign dividends under “Income from Other Sources” and applies your applicable income slab rate. However, the good news is: you can claim a credit for the 25% tax already withheld in the US, thanks to the Double Taxation Avoidance Agreement (DTAA) between India and the US. This prevents double taxation, but only if you file your tax returns correctly.
How Can You Reinvest Dividends from US Stocks?
Once your dividend is credited to your account, you have a few options. Many Indian investors choose to reinvest the dividend rather than withdraw it, allowing the money to grow further.
Here’s how you can reinvest:
1. Manual Reinvestment
This is the most common method. You can use the dividend amount to buy more US stocks or ETFs – either the same stock or diversify into new ones. It gives you full control over your strategy.
2. Dividend Reinvestment Plan (DRIP)
Some platforms offer DRIP options, where dividends are automatically used to purchase more shares of the same stock, often commission-free. However, DRIPs may not always be available for Indian residents, depending on the broker, so check eligibility before relying on it.
3. Withdraw the Funds to India
While possible, withdrawing dividend income to an Indian bank account involves forex charges, currency conversion losses, and compliance under the RBI’s LRS (Liberalized Remittance Scheme). That’s why most investors prefer to reinvest their dividends and keep growing their dollar-denominated assets.
Why Reinvesting Makes Long-Term Sense
Reinvesting dividends, especially in high-quality dividend-paying stocks, leads to compounding. Over time, those reinvested dividends buy more shares, which in turn generate more dividends.
It’s a passive wealth-building strategy that can significantly boost total returns. For Indian investors seeking to build a long-term global portfolio, reinvesting US stock dividends is a prudent move, particularly since returns are denominated in USD, providing a natural hedge against INR depreciation.
Final Thoughts
Receiving and reinvesting US stock dividends as an Indian investor is both legal and beneficial, provided you understand the process. Stay aware of withholding taxes, file your Indian tax returns correctly, and use your dividends wisely to grow your portfolio.
If you’re still learning how to invest in US stocks from India, consider dividend-paying companies as part of your global strategy. After all, in investing, cash flow matters – and dividends provide just that, in a globally strong currency.
