Sri Lanka NRIs · Dividend Tax

Dividend tax on Indian shares for NRIs in Sri Lanka

Dividends from Indian companies are withheld at the non-resident rate before they reach you in Sri Lanka. Here's the treaty position and how to reclaim any excess.

When an Indian company pays you a dividend while you live in Sri Lanka, the company withholds tax at source before the money reaches you. India's default withholding on non-resident dividends is 20% under Section 393(2), the successor to Section 195. The India-Sri Lanka treaty position is more favourable, capping the rate at 7.5% for individual residents, a real saving over the 20% default (Article 10). To claim it you need Form 41, the successor to Form 10F, and a Tax Residency Certificate on file with the company or your broker.

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India-Sri Lanka key facts: dividend tax

Default non-resident TDS rate	20%
India-Sri Lanka DTAA treaty rate	7.5%
Your saving via the treaty	12.5%
Treaty article / basis	Article 10: flat 7.5% treaty cap, one of the lowest India offers any country
Your TRC issuing authority	the Inland Revenue Department (IRD)

Rates reflect India's domestic withholding under Section 393(2) (Section 195 until 31 March 2026) and the India-Sri Lanka treaty. Surcharge and cess apply on top where relevant.

How it works on the India side

Since the 2020 shift back to classical dividend taxation, dividends from Indian companies are taxable in the shareholder's hands and the company deducts TDS before paying. For a non-resident the default is 20% under Section 393(2) (Section 195 until 31 March 2026), plus surcharge and cess, and Section 115A taxes those dividends at 20% of the gross amount with no expenses allowed. A lower rate only ever comes from a treaty, and only where that treaty writes one for individuals: several of India's treaties reserve the reduced dividend rate for companies holding a large stake in the Indian payer, and some countries have no treaty with India at all, so portfolio investors there stay at the domestic rate.

Where a lower individual rate does apply, you claim it with Form 41 (formerly Form 10F) and a Tax Residency Certificate lodged with the company or broker, and any dividend withheld at the higher rate before your paperwork was on file is reclaimed through your Indian return. Where no lower rate applies, the 20% is generally your final Indian tax, so the questions worth asking are whether the payer withheld more than the correct rate and surcharge, and whether the country you live in gives you a credit for that Indian tax.

What changes because you live in Sri Lanka

Sri Lanka ring-fences the credit for your Indian tax gain by gain. Section 81 of the Inland Revenue Act makes you work it out separately for each source of foreign income and, where you sold something, separately for each gain, so the Indian tax on one flat or one lot of shares can't shelter the gain on another, and it can't be thrown at your Indian interest and rent either. Each of those separate sums is then held to your average Sri Lankan rate for the year, not your top rate, so anything India took above that average is stranded. There's a clock on it too: you only get the credit if the Indian tax was actually paid within two years of the end of the year you earned the income, unless the Commissioner-General allows longer. Anything left over isn't refunded, carried back or carried forward.

Frequently asked questions

Common questions from Sri Lanka NRIs

India's default is 20% under Section 393(2), but the India-Sri Lanka treaty caps it at 7.5% for individual residents, a saving of 12.5%. To get the lower rate you file Form 41 with a Tax Residency Certificate from the Inland Revenue Department (IRD). Any excess withheld beforehand is reclaimed on your Indian return.

Yes. With Form 41 and a Tax Residency Certificate on file, the treaty rate of 7.5% applies instead of the 20% default, a 12.5% reduction. Dividends withheld at the higher rate before your paperwork was lodged are reclaimed when you file your Indian return.

Go further

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Dividend Tax sorted, by an Indian CA who works with Sri Lanka NRIs

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