If your RSUs have vested and you're still holding the shares, and the company pays a dividend, you get a dividend too.
Yes, that dividend is taxed twice before it reaches you: once by US withholding at source, and again by India on your full slab rate. You can claim most of the US portion back, but only if you file the right form before you file your ITR.
This is different from the tax you already paid when the RSUs vested. Vesting tax is on the value of the shares. Dividend tax is a separate, recurring tax on the cash the company pays out to you afterward, for as long as you hold the shares.
Table of contents
- Why RSU holders get dividends at all
- The US view: withholding tax on your dividend
- The India view: dividend income is taxed again, at your slab rate
- Avoiding double taxation: Foreign Tax Credit via Form 67
Why RSU holders get dividends at all
Once your RSU shares vest, they land in your brokerage account and you become a shareholder of record, just like anyone else who bought the stock in the open market. If the company's board declares a dividend, you receive it in proportion to the shares you hold.
There is nothing 'RSU-specific' about the dividend itself, it is ordinary shareholder income. Dividends are usually paid in cash, though occasionally in additional shares, and the amount is entirely at the discretion of the company's board (not a fixed entitlement).
Unvested RSUs generally don't carry this right. Whether your specific plan grants 'dividend equivalents' on unvested units is a plan-document question, not a tax question, so check your grant agreement rather than assuming.
This matters for Indian tech employees specifically because several large US employers that grant RSUs also pay regular dividends: Microsoft, Qualcomm, and Broadcom have paid dividends for years, and Meta Platforms joined them more recently.
Current per-share dividend amounts and yields for Microsoft, Qualcomm, and Broadcom change with each declaration, so check each company's investor relations page for the live number rather than relying on a figure in this post.
The US view: withholding tax on your dividend
The US taxes dividends paid to non-resident aliens (which is what you are, as an Indian resident, in the eyes of the IRS) through withholding at source. Your broker deducts the tax before the dividend ever reaches your account.
- The default US withholding rate on dividends is 30%.
- Because India and the US have a Double Taxation Avoidance Agreement (DTAA), Indian residents are eligible for a reduced rate of 25% on US dividends.
- To actually get the 25% rate instead of the default 30%, you need to submit Form W-8BEN to your broker, certifying your Indian tax residency. This isn't automatic. DTAA benefits apply only if you've filed the correct paperwork with the source country. Without it, the broker defaults to the higher 30% rate.
Most brokerage platforms that serve Indian residents investing in US stocks handle the W-8BEN filing as part of onboarding, so this is usually a one-time setup rather than something you redo every quarter.
The money withheld by the US broker does not come back to you as a direct refund into your bank account. It is recovered a different way, as a credit against your Indian tax bill, covered below.
The India view: dividend income is taxed again, at your slab rate
This is the part that surprises people. India doesn't give foreign dividends the same treatment as, say, long-term capital gains on stocks.
Foreign dividend income is treated as regular income and added to your total taxable income under the head 'Income from Other Sources,' taxed at your applicable income tax slab rate. If you're in the 30% bracket, your dividend is taxed at 30%, not at some preferential dividend rate.
A few specifics that change the arithmetic:
- You're taxed on the gross amount, not what you actually received. The entire dividend, the gross figure before the US withheld anything, is added to your other income and taxed at slab rates. The US tax withheld does not reduce your taxable income in India; it is claimed back separately as a credit, not subtracted from the income figure.
- Surcharge applies, but it's capped at 15% for dividends. High earners can face a surcharge of up to 25% on regular income, but the surcharge on dividend income specifically is capped at 15%, even if your other income would otherwise push you into a higher surcharge bracket.
- Cess is on top of tax plus surcharge. A 4% Health and Education Cess applies to the aggregate of income tax plus surcharge, not to the income itself.
- Conversion to INR uses a specific exchange rate. Foreign gross dividend amounts must be converted to INR using the SBI TT Buying Rate on the last day of the month immediately preceding the month the dividend was declared, distributed, or paid.
- Timing: you owe Indian income tax on the dividend the moment you receive it, even if you plan to reinvest it. Reinvesting doesn't defer the tax.
Avoiding double taxation: Foreign Tax Credit via Form 67
You've now paid US withholding on the dividend, and India is about to tax the same gross dividend again at your slab rate. The way you avoid genuinely paying both in full is the Foreign Tax Credit (FTC).
How the credit is calculated. The FTC you can claim is the lower of the foreign tax actually paid and the Indian tax payable on that specific income.
In practice, since your Indian slab tax on a dividend is usually higher than the flat 25% US treaty rate once you're above the lower slabs, you typically get to claim the full US withholding back, and pay India the difference.
The foreign tax paid figure used is the actual amount your broker withheld, converted to INR using the SBI TT Buying Rate for the month preceding the month the tax was deducted.
Form 67: what it is and when to file it. Form 67 is the mandatory statement any resident Indian taxpayer must file to claim credit for tax paid in another country, whether that tax was deducted at source (as with dividend withholding) or paid directly. It's filed electronically on the Income Tax e-filing portal.
On the deadline: the law technically allows Form 67 to be submitted up to the end of the relevant Assessment Year, March 31st. In practice, though, you need to file it before you file your ITR. The ITR form requires you to enter the tax credit details, and if Form 67 isn't already on record, the tax department's automated processing at the CPC will reject or simply ignore the credit claim. Filing it right at the March 31st deadline is really only useful if you're amending an already-filed Form 67 through an updated return (ITR-U). So treat 'before your ITR' as the real deadline, not 'before March 31.'
When filing Form 67, upload proof of the tax deducted, typically your broker's Year-End Statement or IRS Form 1042-S, which US brokers issue showing the dividend paid and tax withheld.
Reporting it in your ITR: Schedule FSI, cross-checked against Schedule FA. Once Form 67 is filed, you proceed to your ITR, typically ITR-2 or ITR-3. Inside the return:
- Schedule FSI (Foreign Source Income) is where you report the gross dividend income earned and the tax paid abroad on it. The tax relief figure you enter here must match your Form 67 exactly.
- Schedule TR (Tax Relief) is where the actual credit is claimed, under Section 90 of the Income-tax Act.
- Schedule FA is separate and mandatory: it's where you declare the underlying foreign asset itself, the RSU shares you hold, regardless of whether they paid you anything that year. Even a single foreign share must be declared here. Schedule FSI reports the income; Schedule FA reports the asset behind it. You need both.
The tax department's Central Processing Centre runs an automated cross-check across Form 67, Schedule FSI, and Schedule TR.
Small mismatches, often from using the wrong exchange rate, are a common trigger for defective-return notices and extra scrutiny. Getting the SBI TT Buying Rate right, and using the exact same converted figures across all three, matters more than it seems like it should.
Example
Suppose you're an Indian resident holding vested Microsoft RSU shares, and you're in the 30% income tax slab with total income between ₹50 lakh and ₹1 crore (so a 10% surcharge applies to dividend income).
Microsoft declares a dividend, and your quarterly payout works out to $1,000 gross. You've filed Form W-8BEN with your broker, so US withholding applies at the treaty rate of 25%.
Using an illustrative conversion rate of ₹86 per dollar (use the actual SBI TT Buying Rate for the relevant month when you file):
| Item | Amount |
|---|---|
| Gross dividend | $1,000 (₹86,000) |
| US withholding tax (25%) | $250 (₹21,500) |
| Net dividend received | $750 (₹64,500) |
| Indian tax on gross dividend (30% slab) | ₹25,800 |
| Surcharge (10% of tax) | ₹2,580 |
| Cess (4% of tax + surcharge) | ₹1,135 |
| Total Indian tax before FTC | ₹29,515 |
| Foreign Tax Credit claimed (lower of US tax paid and Indian tax due) | ₹21,500 |
| Net additional Indian tax payable | ₹8,015 |
The result: you end up paying a combined ₹29,515 in tax on this dividend (₹21,500 to the US, ₹8,015 more to India), which equals your full Indian slab-rate liability on the income, not the two taxes stacked on top of each other.
That's what the Foreign Tax Credit is doing: making sure you land at the higher of the two countries' tax rates instead of paying both in full. Miss the Form 67 filing before your ITR, though, and you risk losing that ₹21,500 credit entirely.
