Indian investors who invest in US stocks or Exchange-Traded Funds (ETFs) may receive dividends from US companies. Before these dividends are credited, the US government may deduct tax at source. By submitting Form W-8BEN, eligible Indian investors can claim the tax benefits available under the India-US Double Taxation Avoidance Agreement (DTAA).
Understanding how Form W-8BEN works and how US dividend taxation applies can help Indian investors avoid excessive tax withholding and claim tax relief where eligible.
Key Takeaways
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Form W-8BEN certifies that an investor is a non-US tax resident.
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Indian investors can claim a reduced US dividend withholding tax by submitting Form W-8BEN.
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Under the India-US DTAA, the US dividend withholding tax is generally reduced to 25%.
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US dividend tax is deducted before the dividend is credited to the investor.
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Indian investors may be able to claim Foreign Tax Credit (FTC) for tax paid in the US, subject to Indian tax laws.
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Form W-8BEN generally remains valid until the end of the third calendar year after submission unless there is a change in circumstances.
What Is Form W-8BEN?
Form W-8BEN (Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting) is a declaration submitted by non-US individuals to certify that they are not US tax residents.
For Indian investors, submitting this form allows the broker or financial institution to apply the tax treaty benefits available under the India-US DTAA instead of the higher default US withholding tax rate.
Who Should Submit Form W-8BEN?
Form W-8BEN is generally required for:
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Indian residents investing in US stocks.
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Investors holding US-listed ETFs that pay dividends.
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Individuals earning dividend income from US securities.
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Investors opening an international brokerage account that requires US tax documentation.
Most international brokers ask investors to complete this form during account opening.
How Does US Dividend Tax Work?
When a US company declares a dividend, the dividend is paid after deducting the applicable withholding tax.
Without Form W-8BEN
If Form W-8BEN is not submitted, the default US withholding tax rate for non-resident investors may apply, subject to US tax rules.
With Form W-8BEN
After submitting Form W-8BEN, eligible Indian investors can generally claim the reduced withholding tax rate available under the India-US DTAA.
The tax is deducted automatically before the dividend reaches the investor's account.
India-US DTAA and Dividend Tax
India and the United States have signed a Double Taxation Avoidance Agreement (DTAA) to reduce the chances of the same income being taxed twice.
Under the treaty, the US generally withholds dividend tax at 25% for eligible Indian residents who have submitted Form W-8BEN and satisfy the treaty conditions.
The tax treaty benefit applies only after the required declaration has been submitted to the broker or withholding agent.
Also Read About: Taxation on US Stocks
Can Indian Investors Claim a Foreign Tax Credit?
Yes. Tax deducted in the US may generally be claimed as a Foreign Tax Credit (FTC) while filing an income tax return in India, subject to the provisions of the Income Tax Act, 1961, applicable DTAA provisions, and prescribed documentation requirements.
The Foreign Tax Credit helps reduce double taxation by allowing eligible taxpayers to offset taxes paid in the US against their Indian tax liability.
How to Submit Form W-8BEN?
The process generally involves the following steps:
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Open an international trading account with a broker offering access to US markets.
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Complete Form W-8BEN during account opening or through the broker's online portal.
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Provide your personal details, country of tax residence, and tax identification information.
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Electronically sign or submit the completed form.
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The broker verifies the information and applies the applicable treaty benefits.
The exact submission process may vary depending on the brokerage platform.
Validity of Form W-8BEN
Form W-8BEN generally remains valid from the date it is signed until the last day of the third succeeding calendar year.
A new form may need to be submitted if it expires or if there is a change in the investor's tax residency or other relevant information.
Benefits of Submitting Form W-8BEN
Lower Dividend Tax Withholding
Eligible investors can benefit from the reduced withholding tax available under the India-US DTAA.
Avoid Double Taxation
The form supports claiming treaty benefits and helps minimise double taxation on dividend income.
Faster Tax Compliance
Submitting the form ensures that the correct withholding tax rate is applied from the outset.
Simple Documentation Process
Most international brokers provide an online process for completing and submitting Form W-8BEN.
Conclusion
Form W-8BEN is an important tax document for Indian investors investing in US securities. By submitting the form, eligible investors can claim reduced US dividend withholding tax under the India-US DTAA and may also be able to claim Foreign Tax Credit in India, helping improve post-tax investment returns.
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