DTAA provisions on dividend income from US equities tax liability

DTAA provisions on dividend income from US equities tax liability

Sir / Madam,

I have dividend income from US equities. This income is taxed at 25% in USA. I have filed form 67 and sought relief through the tax credit method to avoid double taxation. I have a tax demand from CPC asking me to pay the balance tax (i am in the highest tax bracket) with surcharge and cess after accounting for the tax credit . But I have the following question,

I would like to quote subparagraph (b) of Section 1 under Article 2 of the India – USA tax treaty that mentions the tax covered in treaty shall include the income tax including any surcharge thereon referred to as “Indian Tax”. I would like to further quote the subparagraph (b) of Article 10 of the India –USA Tax Treaty which specifies that the tax charged shall not exceed 25% of the gross amount of dividends.Applying the above 2 clauses, there should not be any surcharge and cess levied on the foreign source dividend income as the tax rates specified under DTAA already includes these.

I would also like to quote , the section 90(2) of the Income Tax Act, 1961 which states that ,
“Where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee.”
In other words, if the provisions of DTAA are more beneficial to the tax payer, then the provisions of DTAA would prevail over the Indian Income Tax Act. Applying the above clause, the foreign source dividend income should be taxable at the rate beneficial to the assesse i.e 25% (as prescribed in Article 10 of the India – USA Tax Treaty) and not at applicable rates.As taxes are already paid in the USA, there should not be any additional tax liability under DTAA after considering foreign tax credit.
Further , the non discriminatory clause states that the residents cannot be treated differently with respect to taxation

I have also quoted few case law to support this argument and also filed a grievance with CPC.

Reliance in this regard is also placed on the following decisions in support of our contentions:-
a) Kolkata Tribunal and Mumbai Tribunal DIC Asia Pacific Pte Ltd vs Asst Director of Income Tax, International Taxation in ITA No. 1458 (kol) of 2011 dated 20.6.2012 for Asst Year 2009-10 reported in (2012) 52 SOT 447 (Kol ITAT)
b) ITO (Intl Taxn) vs M/s M Far Hotels Ltd in ITA Nos. 430 to 435 / Coch / 2011 dated 5.4.2013 (Cochin Tribunal)
c) Sunil V. Motiani vs ITO (International Taxation) reported in (2013) 33 taxmann.com 252 (Mumbai Trib)

 Response from CPC is that since I am an Indian resident as per provisions of IT Act , the dividend income cannot be charged at DTAA rates and balance tax has to be paid

Asked 2 months ago in Income Tax

You’ve raised a very important and debated issue in international taxation — the interplay between the India–USA DTAA, surcharge/cess in Indian law, and the scope of foreign tax credit. Let me break this down for you clearly:

1. What DTAA Article 10 Says (Dividends)

Article 10(2) of the India–USA DTAA provides that dividend income may be taxed in the USA, but such tax shall not exceed 25% of the gross amount of dividends.

This clause only limits the source country’s right (USA) to tax the dividend. It does not restrict India’s right to tax the dividend as the country of residence.

In practice, the US withholds 25% (as per treaty). This is correctly reflected in your 1042-S / broker statements.

2. Indian Tax Treatment

As a resident in India, your global income is taxable in India under the Income Tax Act.

Dividend income from US equities is classified as “Income from Other Sources” and taxed at slab rates (i.e., 30% + surcharge + cess for someone in the highest bracket).

Section 90(2) allows you to apply the DTAA if it is more beneficial. But here, CPC’s view (and settled CBDT position) is:

DTAA does not restrict India’s right to tax the dividend at slab rates.

The 25% cap applies only to tax withheld in the USA (source country).

In India, you must offer the dividend to tax as per the Act, but you get Foreign Tax Credit (FTC) for the US tax withheld.

3. Surcharge & Cess Dispute

Your argument is: since Article 2(b) defines “Indian tax” as including surcharge, the treaty rate should be all-inclusive and surcharge/cess should not apply.

Tribunal rulings (like DIC Asia Pacific Pte Ltd and Sunil Motiani) have indeed held in certain contexts that DTAA rates are final and surcharge/cess cannot be added when the treaty prescribes a rate cap.

But here is the nuance:

Article 10 does not prescribe a rate at which India must tax residents — it only restricts US taxation.

Since there is no DTAA cap on India’s resident taxation, Indian law prevails, i.e., slab rate + surcharge + cess.

Therefore, CPC is correct legally in demanding the differential.

4. Section 90(2) – “More Beneficial” Clause

This helps when DTAA prescribes a lower rate than Indian law (e.g., royalties, interest).

But for dividends, since India is not restricted by DTAA on resident taxation, slab rate applies.

The “more beneficial” rule doesn’t override this, because the treaty doesn’t provide a beneficial resident rate — it only limits source taxation.

5. Foreign Tax Credit (Form 67)

By filing Form 67, you are entitled to FTC under Rule 128.

FTC is limited to the Indian tax payable on that foreign income.

If your Indian tax liability (incl. surcharge + cess) on the US dividend is higher than the 25% US tax withheld, you must pay the balance in India.

6. Non-Discrimination Clause Argument

Article 24 (Non-discrimination) says nationals/residents of one state cannot be taxed more burdensomely than residents of the other state in similar circumstances.

But this has been interpreted narrowly — surcharge/cess applied to all Indian residents uniformly is not considered discriminatory. So CPC won’t allow this.

7. Judicial Precedents

You cited DIC Asia Pacific, M. Far Hotels, and Sunil Motiani — these cases relate to applicability of surcharge/cess when the treaty prescribes a capped rate (e.g., interest, fees, royalties).

In dividends, since no India cap exists, those rulings are distinguishable.

Higher courts (and CBDT circulars) consistently hold that surcharge/cess applies unless treaty explicitly says otherwise.

Conclusion (Practical Position):

Dividend from US equities is taxable in India at your slab rate (30% + surcharge + cess).

You get credit of the US tax (25%) under Form 67.

The balance liability in India must be paid — surcharge/cess included.

Your grievance has logical force, but legally CPC is correct as per current law and jurisprudence.

My suggestion:

You can continue pressing the case in appeal relying on tribunal precedents (though success odds are moderate).

Alternatively, plan investments via US ETFs listed in India or Indian ETFs tracking US markets, which avoid this double-layered tax issue.

Would you like me to draft a structured reply/appeal note to the CPC/ITAT citing the jurisprudence, highlighting the surcharge inclusion argument — so that you have a professional written submission ready if you decide to escalate?

If yes, feel free to connect !

CA Damini Agarwal

Founder- Witcorp India Advisors LLP
Founder - Witcorp Global Consultants LLC-FZ, UAE

Partner | International Taxation - Global Mobility | GST

Income Tax | Corporate Affairs
https://www.thewitcorp.com/

Damini Agarwal

CA, Bangalore, Bengaluru

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Talk to Damini Agarwal

Your reasoning is correct under the India–US DTAA, but Indian tax authorities currently disagree.

DTAA Provisions:

Article 10(2)(b) of India–US DTAA: Tax on US dividends paid to Indian residents shall not exceed 25% of the gross dividend amount.

Section 90(2), Income Tax Act: If DTAA is more beneficial, it overrides domestic law for that taxpayer.

Article 2 (tax covered): “Tax” includes surcharge and cess—so the 25% treaty rate is on “gross,” with no additional surcharge/cess for dividends.

Case Law (Tribunals):

Cited cases (DIC Asia Pacific, M Far Hotels, Sunil Motiani) held that DTAA rates cap total Indian tax on such income, including surcharge and cess.

Practical Reality:

Indian Tax Department's CPC still demands regular slab tax, surcharge and cess.

Their argument is that the DTAA rate is only a “cap” for withholding by source country (US), and dividend income remains taxable at Indian slab rates for residents.

Current practice: Most Indian taxpayers are required to pay tax on US dividends at slab rates, with credit for US tax paid, plus surcharge and cess.

Only the tax credit/relief method is accepted in practice—DTAA rate is not applied as a full cap in assessment, except in rare Tribunal-accepted cases.

What You Can Do:

Continue to claim foreign tax credit for US taxes paid via Form 67.

Challenge the CPC demand: You can rely on the cited Tribunal decisions and the treaty wording; however, success will depend on the stance of your Assessing Officer or whether you pursue it in appeal/Tribunal. There is currently no Supreme Court ruling clarifying this dispute.

Most advisors recommend paying the balance (surcharge and cess) under protest while pursuing grievance/appeal, as the Income Tax Department is unlikely to relent at CPC/grievance level.

Shubham Goyal

CA, Delhi

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Thanks to CA Damini and Shubham for providing suitable explanations.
Special Shout out to CA Damini on detail explanations.

I re read the tax treaty and its clear that tax referred in the treaty only talks about TDS CAP and not about resident taxation for both countries. The treaty is silent about resident tax rate. All it says that the resident may be taxed in the other country. So I dont see any ground for appeal or challenge CPC.

My understanding : applying the TDS CAP logic, the "Indian Income Tax including any surcharge thereon" as specified in the treaty, applies to only non residents. When a non resident earns income in India (source ), since the DTAA specifies the TDS rate cap , the tax should be deducted according to this rate CAP.
The case law cited and many more are mostly related to non residents disputing "surcharge + cess" levied separately on India income . Unlike my case where income source is USA, I cannot use this arguement as I am a Indian resident for tax purpose.

I see same wordings for royalties /interest and silence on resident tax rates

So , question to CA Damini / Shubham :how can i argue that surcharge /cess should not be levied separately and file an appeal ?

Also I have some apprehensions about filing appeal on weak grounds, if there will be some kind of retailiation . Will there be some kind of witch hunting , like scrutnizing by returns and finding out some mistakes and levying penalty etc.. I dont want to shoot my own foot. In trying to save some money , i dont want to end up in a bigger mess.

One eg : I have been relying on 1042S for claiming FTC. But its provided on a calendar year basis different from our FY.On advise of my current CA that tax authorities rely on 1042S for verification, for declaring foreign dividen income, i dont include the Jan-Mar (last qtr dividend) for the current year as its not reflected in1042S which otherwise creates mismatch. I show it in next year return in sync with 1042S

Asked 2 months ago

Thanks for your kind words !!
Please refer to our assessment for your case point wise:

1. DTAA Language – Why the “CAP” Works Only for Non-Residents

You are correct that Articles on Dividends, Interest, Royalties, etc. in DTAAs put a cap on the tax that the source country (India, in most examples) can charge when the recipient is a non-resident.

These provisions don’t govern how a resident of India is taxed on global income. For Indian residents, the Income-tax Act applies in full, including surcharge and cess.

Courts (including Delhi HC in CIT v. Sunil V. Motiani and others) have consistently held that the treaty caps apply only for non-residents, not residents. So, as you rightly concluded, it’s hard to stretch this argument in your favour as an Indian resident.

2. Why the Surcharge/Cess Argument is Weak in Your Case

The case law where taxpayers succeeded was always in non-resident context where Indian payers were deducting TDS beyond treaty caps (i.e., surcharge + cess on top of capped DTAA rate).

In your case, you are resident, earning from USA, and paying tax in India under the normal slab system. Treaty helps you only by granting FTC (foreign tax credit), not by altering India’s resident tax slabs.

Therefore, arguing that surcharge/cess shouldn’t apply is unlikely to succeed.

3. Should You File an Appeal?

On merits: The chance of success is low, because DTAA doesn’t give relief to residents on domestic tax surcharge/cess.

On risk: Filing an appeal is your right, but you’re correct—once you’re in the appellate system, your file gets opened up. While there is no official “retaliation,” practically, scrutiny chances go up. If you have grey areas (like the Jan–Mar dividend mismatch handling), those could get probed.

Costs vs. benefits: If the cess/surcharge is only a few % on dividend income, the litigation cost + risk may outweigh potential savings.

4. Specific Point on 1042-S / Calendar vs FY Mismatch

The way you’re handling (deferring Jan–Mar to next FY return to align with 1042-S) is a common practical approach, but technically, under Indian law, dividend should be offered on accrual/receipt basis in the relevant FY, not shifted.

If CPC or AO digs deeper, they could say this mismatches Indian law (even if practical from reconciliation perspective). So yes, pushing into appellate scrutiny might expose this.

Safer practice: maintain a reconciliation working to show that over two consecutive years, the total dividend is fully offered, though FY cut-off differs. This way, even if questioned, there’s no “income suppression”—just timing alignment.

5. Practical Advice for You

Do not appeal on surcharge/cess: Grounds are very weak for a resident taxpayer.

Continue FTC claim using 1042-S: But prepare a robust reconciliation note in your tax file showing how you align Jan–Mar dividends.

Consider a rectification (if applicable) under Section 154 instead of full appeal if you still feel surcharge/cess was wrongly computed by CPC. But here too, outcome is doubtful.

Risk management: Unless the disputed amount is very material, better to pay and close rather than invite deeper scrutiny.

Feel free to connect in case you like me to draft a self-defense note you can keep on file (explaining your 1042-S alignment method), so that even if scrutiny comes someday, you can clearly show there’s no concealment, only timing reconciliation?

Thanks & Regards,

CA Damini Agarwal

Founder- Witcorp India Advisors LLP
Founder - Witcorp Global Consultants LLC-FZ, UAE

Partner | International Taxation - Global Mobility | GST

Income Tax | Corporate Affairs
https://www.thewitcorp.com/

Damini Agarwal

CA, Bangalore, Bengaluru

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Talk to Damini Agarwal

DTAA (India–US): The 25% cap in Article 10 applies to withholding at source (US side), not to taxation of residents in India. Since you are a resident, India taxes your global income at slab rates.

Indian practice: CPC correctly applies slab rate + surcharge + cess, then allows foreign tax credit for the 25% already paid in the US.

Case laws you cited mainly help non-residents disputing Indian withholding—less useful for a resident like you.

Appeal option: You can still argue that DTAA covers surcharge/cess, but it’s a weak ground for residents. Unless you’re ready to litigate, it’s safer to accept CPC’s computation and continue with FTC.

Risk: Filing an appeal on weak grounds can increase scrutiny. If you want to avoid compliance hassle, better to pay balance tax and keep FTC documentation strong.

Recommendation: Pay the balance tax (with FTC relief), avoid appeal unless willing to go through litigation. Keep 1042-S mapping consistent year to year and disclose properly to avoid mismatches.

Shubham Goyal

CA, Delhi

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Talk to Shubham Goyal

Thanks once again for clarity. Major portion of my income is from employer RSUs and foreign dividend is arising due of this. Its a recurring income every year based on the RSU holdings.

As its a recurring income, if an appeal works in my favour , then the savings could be decent over the period of time. But I dont see any merit in appeal after understanding the DTAA in detail. Besides, DTAA is a provision to help tax payers to avoid double taxation by offering credits on tax paid. I got lost in wordings.

I will settle with your practical advice . This issue exists for FY 23 / FY24 . CPC has responded to FY24 grievance that I am an Indian resident for tax purpose. I should have contacted this group earlier . I could have saved some heavy interest on the outstanding amount. On the reconciliation note, Is it some thing i need to submit during tax filing or is it for book keeping purpose for my own records?

I spend a lot of time preparing sch FA mainly the table A3 . In the gross income column, I distribute the dividend income across holdings, the peak value column by multiplying the highest value of the share price in that year by TTBR on that date . For closing value , I take the share price on Dec31 and multiply by TTBR and populate it. There is lot of data and I dont know how these numbers are useful for tax purposes. I tally and ensure the sum of gross income column matches foreign dividend. I keep record of every number entered in the table hoping that it may be useful on a rainy day

For one of my holdings (American Depository Shares) , the tax is withheld in Taiwan, ROC. Obtaining official tax certificate is becoming difficult. The broker is providing 1042-S form only for US withholdings. Can i submit a broker stmt in this case showing the tax withheld to claim FTC?

For TTBR on last day of previous month, I rely on GitHub maintained by one Sahil Gupta.
I will connect with you in near future to audit my filing methodology and close any gaps

Asked 1 month ago

Since your RSU dividends are recurring, an appeal could save tax if successful, but in practice DTAA only limits US withholding (25%) and India rightly taxes residents at slab + surcharge/cess with FTC. Litigation is on weak ground, so best to settle with CPC’s method and focus on proper FTC compliance.

Reconciliation note – not required to be filed; keep it for your own records to support Sch FA/FTC in case of scrutiny.

Sch FA Table A3 – largely disclosure; income reported must match your dividend figures, but peak/closing values are for reporting foreign assets, not tax computation.

Taiwan ADS withholding – if no official certificate, a broker statement can be used for FTC claim (ensure it clearly shows tax withheld).

TTBR source – GitHub data is fine; just archive copies as evidence.

Shubham Goyal

CA, Delhi

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Talk to Shubham Goyal

You’re right — it’s painful to fill in “gross income / peak value / closing value” for each foreign holding.

Purpose of A3 is not direct tax calculation but disclosure & deterrence under Black Money Act:
- Gross Income → cross-check against Schedule OS (foreign dividend).
- Peak Value → used if ITD wants to levy penalty/tax under BMA for non-disclosure.
- Closing Value → annual stock of foreign assets.

Your method is correct:
- Gross income = actual dividend (distributed across holdings).
- Peak = highest share price × TTBR.
- Closing = Dec 31 price × TTBR.

These numbers are more compliance disclosures than used for direct tax computation.

Using TTBR from GitHub (Sahil Gupta)

This is fine for personal calculation, but for ITD scrutiny, you should cite official RBI TTBR.

RBI publishes monthly TTBR; ensure your Excel source aligns with that.

If using GitHub values, double-check with official RBI PDF (available on RBI website).

FTC Claim — Taiwan withholding

If official tax certificate is difficult, broker statements showing withholding are accepted by CPC in practice, provided:
- Statement clearly identifies security, gross dividend, tax withheld, net credit.
- Withholding matches what is shown in AIS / Form 26AS (if at all reflected).

1042-S covers only US source. For Taiwan, broker statement should suffice — attach it in FTC schedule filing.

You can still plan proactively for FY25 onwards (timing of RSU vests, treaty angles, etc.).

Feel free to connect with us in case of any requirements !

Thanks & Regards,

CA Damini Agarwal

Founder- Witcorp India Advisors LLP
Founder - Witcorp Global Consultants LLC-FZ, UAE

Partner | International Taxation - Global Mobility | GST

Income Tax | Corporate Affairs
https://www.thewitcorp.com/

Damini Agarwal

CA, Bangalore, Bengaluru

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I am confused on what Fx rate to be used for USD to INR conversion for the purpose of computing capital gains from selling foreign shares and foreign dividend income.

I looked up RBI reference rates here,

https://www.rbi.org.in/scripts/ReferenceRateArchive.aspx

It does not mention anything about TTBR.

I compared these reference rates to the one from github which archives daily SBI Forex Card Rates (Page 1 of the PDF) (CARD RATES FOR TRANSACTIONS BETWEEN Rs. 10 LACS AND Rs. 20 LACS.(To be used as reference rates)

https://github.com/sahilgupta/sbi-fx-ratekeeper/tree/main/pdf_files

Specifically , the first column under "TT BUY" for USD / INR

I see difference of roughly 25-30 paise , with SBI TTBR being lower on that date.
For eg , RBI reference rate on 31 May 2024 is 83.2988 vs SBI TTBR on the same date being 83.05

My current computation uses SBI TTBR from github as is.Your last response mentions about ensuring the excel source aligning with the RBI official TTBR pdf etc, I am not sure how to go about it.

Rule 26 seem to say this,

"telegraphic transfer buying rate", in relation to a foreign currency, means the rate or rates of exchange adopted by the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), for buying such currency, having regard to the guidelines specified from time to time by the Reserve Bank of India for buying such currency, where such currency is made available to that bank through a tele- graphic transfer;

It mentions both about SBI and RBI but specifically about rates adopted by SBI within the guidelines of RBI.
So it is not very clear what Fx rate i should use for INR conversion

I could not find any RBI PDF.It gave me an option to download in xls format
Even RBI seems to have outsourced the work of publishing refernce rate to FBIL

Can you clear this confusion and guide me with an example based on the data from website links I shared above as this impacts INR income?

Asked 1 month ago

Nothing to worry, You can continue with SBIT TTBR rates. Even we are using the same. Some sites tells to use RBI rate , so I suggested that. But its ok !

Damini Agarwal

CA, Bangalore, Bengaluru

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Talk to Damini Agarwal

Law (Rule 26) → Use SBI’s TT Buy Rate (TTBR), not RBI/FBIL reference rate.

RBI reference rate is only indicative; it has no legal standing for tax conversion.

So for foreign dividends → use SBI TTBR on date of credit.

For capital gains → use SBI TTBR on acquisition date & sale date.

Your GitHub archive (SBI Forex Card PDFs, TT Buy column) is correct. Just save the PDFs as proof.

Example (31-May-2024):

RBI ref rate = 83.2988 (ignore)

SBI TTBR = 83.05 (use this)

Dividend $100 = ₹8,305 (100 × 83.05).

Always stick to SBI TTBR. RBI/FBIL rates are not for tax computation.

Shubham Goyal

CA, Delhi

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Talk to Shubham Goyal

As told earlier,I have been claiming FTC/Form67 based on 1042S(CY basis)
This year 1042S has 2 groups,
1)Code 01-Interest paid by US obligors-general
2)Code 06-Dividends paid by US corporations -general

For grp1,no tax & 25% tax is withheld for grp2
Grp 1 is actually dividend income from Fidelity MMF but wrongly given code 01.The RSU sale proceeds,dividends are autosweeped into this MMF
Although the total income (grp 1 + 2) and tax withheld is correct, there are some issues.The dividend distributed from company RSUs should match grp 2. But some portion of grp1 income is wrongly moved to grp2 . If i sum all the dividends from table A3 of Sch FA it does not match grp 2. Will this be an issue and flagged?
I read your replies about incorrect 1042S in another post wherein you are asking to attach the broker stmt & also provide a declaration
Dont want to complicate things as I have been enclosing/relying on 1042S data for FTC/Form 67 in the past.
Since the total income & tax withheld is correct,to simplify things,option 1 is to ignore this group wise mismatch and just total the grp 1 & 2 as single dividend income in form67 and claim FTC

In form67,it asks about tax paid outside India and rate%.Especially if i plan to club grp1 & 2 together (option 1),I am not sure what to enter rate % since grp1 income is not taxed and grp2 income is taxed at 25%
Easy Option is to create a 2nd dividend entry and mention 0% matching 1042S -my preferred option

For RSU sold mid year how to compute peak & closing value in table A3?

For MMF dividend,plan to give details in table G as could not find any relevant table.Worried that ITD may treat it as additional investment if i put it in table A3,B or D.Can i skip reporting this altogether & just populate A2 with dividend? I feel at times being genuine & providing all info,may get one into trouble due to lack of understanding & get penalized for misreporting as its complicated

please advise in detail on all queries

Asked 1 month ago

1042-S Reporting Strategy

Go with Option 2 (your preferred): Create two separate entries in Form 67:

Entry 1: Group 1 amount, 0% tax rate (MMF dividend)

Entry 2: Group 2 amount, 25% tax rate (corporate dividend)

Why: Avoids complications with blended tax rates and matches 1042-S structure exactly.

Schedule FA Reporting

Table A3: Report actual company dividend amounts (ignore 1042-S group mismatch)

Total should match your RSU dividend records, not 1042-S Group 2

MMF Dividend: Use Table A2 under "Other Income"

Don't complicate with Table G or separate investment reporting

It's income, not an investment asset

RSU Mid-Year Sales in Table A3

Peak Value: Highest share price × quantity × TTBR on that peak date

Closing Value: Zero (since sold during the year)

Documentation

Attach broker statement with simple declaration:
"1042-S coding error: Group 1 represents MMF dividend income, not interest. Actual corporate dividends reported as per company records."

Bottom Line

Don't skip reporting - proper disclosure protects you

Keep it simple - match 1042-S format in Form 67, report actual amounts in Schedule FA

Total income and tax withheld are correct - that's what matters most for FTC

This approach maintains compliance while handling the coding error transparently.

Shubham Goyal

CA, Delhi

513 Answers

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Talk to Shubham Goyal

You’ve raised several interlinked points that many NR taxpayers face when reconciling Form 1042-S vs. Indian Form 67 / FTC. Let me break it down carefully:

1. Group mismatch in 1042-S (Code 01 vs. Code 06)

Technically, Code 01 is “interest”, but Fidelity often uses it for MMF dividend sweeps, which are actually dividends.

You are right: that makes the split between grp 1 (untaxed) and grp 2 (25% WHT) messy.

However, since the total income + total US tax withheld matches reality, the ITD is unlikely to flag just because the split doesn’t map neatly to A3.

Option 1 (club together): Safer and simpler in theory, but then you face the FTC “rate %” issue.
Option 2 (two separate entries): Matches your 1042-S, easy to explain, keeps audit trail clean. This is preferable — show:

Dividend 1 (MMF “interest/dividend”), tax 0%,

Dividend 2 (stock dividend), tax 25%.
This way Form 67 reflects exactly what your 1042-S shows, so less chance of queries.

2. FTC / Form 67 – how to fill rate %

If you club, you’d have to show a blended rate = Total tax withheld ÷ Total income. That will look odd (e.g. ~18.5%) and is harder to reconcile.

If you split, you can enter 0% for Group 1 and 25% for Group 2. This is clean, matches 1042-S, and easy to defend.

Best to go with two separate dividend entries, just as you thought.

3. RSU Sales in A3 (peak & closing values)

Peak value = highest market value of your holdings during the year (FMV × # units held at that point). For RSUs sold mid-year, compute this at the point where your RSU holdings were maximum.

Closing value = FMV of RSU holdings on 31 March. If all sold, closing = 0.

Gross sale proceeds = the actual cash realized from the sale (before broker fees).

4. MMF Dividend reporting

The MMF “core position” is tricky:

It behaves like cash (stable $1 NAV).

But distributions (dividends) are income, not capital gains.

If you put MMF in A3, ITD might think it’s an “investment” and expect capital gains.

Better approach (as you suggested):

Report MMF dividend under Schedule OS (Other Sources → Dividend, Foreign).

Don’t list MMF as a security in A3 (since it’s effectively just cash sweep).

In Schedule FA, A1 (Depository account) already captures the peak & closing balance, which includes this MMF sweep.

So: report the income, not the holding. That avoids misinterpretation.

5. A2 applicability

A2 (Foreign entity interest) = only if you hold equity in a company/partnership/trust, not mutual funds or MMFs.

So you can skip A2 here.

Just disclose RSU shares in A3, and dividends in OS.

6. Risk of over-disclosure vs. under-disclosure

You are right: sometimes over-disclosure = confusion.

If you show MMF as an A3 security and again show dividend, it can look like double income.

If you keep it simple (A1 + A3 for stocks + Dividend income separately), you’re genuine but not creating “phantom” investments.

Best balance:

A1: Fidelity account.

A3: RSUs/shares.

Schedule OS: dividends (both stock + MMF).

Form 67: split entries to match 1042-S.

Thanks
Damini

Damini Agarwal

CA, Bangalore, Bengaluru

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DTAA provisions on dividend income from US equities tax liability

Case Law (Tribunals): Cited cases (DIC Asia Pacific, M Far Hotels, Sunil Motiani) held that DTAA rates cap total Indian tax on such income, including surcharge and cess.

Using TTBR from GitHub (Sahil Gupta) This is fine for personal calculation, but for ITD scrutiny, you should cite official RBI TTBR. RBI publishes monthly TTBR; ensure your Excel source aligns with that. If using GitHub values, double-check with official RBI PDF (available on RBI website).

1042-S Reporting Strategy

Schedule FA Reporting

RSU Mid-Year Sales in Table A3 Peak Value: Highest share price × quantity × TTBR on that peak date Closing Value: Zero (since sold during the year)

Documentation

Bottom Line Don't skip reporting - proper disclosure protects you Keep it simple - match 1042-S format in Form 67, report actual amounts in Schedule FA Total income and tax withheld are correct - that's what matters most for FTC

5. A2 applicability A2 (Foreign entity interest) = only if you hold equity in a company/partnership/trust, not mutual funds or MMFs. So you can skip A2 here. Just disclose RSU shares in A3, and dividends in OS.

6. Risk of over-disclosure vs. under-disclosure

Ask a Chartered Accountant

Case Law (Tribunals):

Cited cases (DIC Asia Pacific, M Far Hotels, Sunil Motiani) held that DTAA rates cap total Indian tax on such income, including surcharge and cess.

Using TTBR from GitHub (Sahil Gupta)

This is fine for personal calculation, but for ITD scrutiny, you should cite official RBI TTBR.

RBI publishes monthly TTBR; ensure your Excel source aligns with that.

If using GitHub values, double-check with official RBI PDF (available on RBI website).

RSU Mid-Year Sales in Table A3

Peak Value: Highest share price × quantity × TTBR on that peak date

Closing Value: Zero (since sold during the year)

Bottom Line

Don't skip reporting - proper disclosure protects you

Keep it simple - match 1042-S format in Form 67, report actual amounts in Schedule FA

Total income and tax withheld are correct - that's what matters most for FTC

5. A2 applicability

A2 (Foreign entity interest) = only if you hold equity in a company/partnership/trust, not mutual funds or MMFs.

So you can skip A2 here.

Just disclose RSU shares in A3, and dividends in OS.