W8-BEN for claiming treaty benefit on dividends for an Indian resident

Question

I am an individual residing in India and will be filling form W8-BEN, in which I need help in filling the section PartII: Claim of Tax Treaty Benefits (Point 9 and 10):

As of now my tax withholding agent keeps 30 percent of the dividend payment as I haven't filled anything in point-10. But looking at treaty between India-US in ARTICLE 10, Paragraph-2 it mentions:

However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed :

(a) 15 percent of the gross amount of the dividends if the beneficial owner is a company which owns at least 10 percent of the voting stock of the company paying the dividends;

(b)25 per cent of the gross amount of the dividends in all other cases.

So do I need to mention withholding rate as 25% and claim it back under DTAA while filing income tax return in India ? Or can I write tax withholding as 0% since I will anyway pay taxes in India as per income slab rate ?

Answer 1

You will need to state the withholding rate as 25% citing the clause you have included in your question. You can't have the foreign broker withhold 25% of the dividend and claim it on your Indian return. As far as I know, when you file your US return as a non-resident (1040NR or 1040 NR-EZ), you should calculate your taxes as per US tax brackets and should claim any excess tax paid. On your Indian return, you should claim tax credit against the US taxes paid on this dividend.