Every month, our WhatsApp community buzzes with the same question: "Can I earn passive income from Indian stocks while living abroad?"
The answer is yes. Dividend stocks offer NRIs a steady income stream while staying connected to India's growth story. Companies like Coal India, ITC, and Infosys distribute billions in dividends annually.
At Belong, we've helped hundreds of NRIs build dividend portfolios that generate regular cash flow. Here's everything you need to know before you start.
How Do Dividends Work for NRIs?
When an Indian company earns profits, it can share a portion with shareholders. This payment is called a dividend. Unlike capital gains that you realize only when selling, dividends provide regular income while you continue holding the stock.
Most Indian companies declare dividends annually after their board meetings. Some declare interim dividends during the year. The money gets credited directly to your linked bank account on the payment date.
For NRIs, dividends from Indian companies get credited to either your NRE or NRO account. If you bought shares through an NRE-linked PIS account, dividends are fully repatriable. NRO account dividends follow standard repatriation rules.
The 20% TDS Reality
Here's what many NRIs don't realize: dividend taxation changed significantly in April 2020.
Earlier, companies paid Dividend Distribution Tax (DDT), and shareholders received tax-free dividends.
Now, dividends are taxed in your hands. For NRIs, companies deduct TDS at 20% plus applicable surcharge and cess before crediting the amount, according to Section 195 of the Income Tax Act.
The effective rate works out to approximately 20.8% to 23% depending on surcharge slabs.
👉 Tip: If your total Indian income falls in a lower tax bracket, you can claim a TDS refund when filing your ITR.
DTAA Can Reduce Your Tax
The India-UAE DTAA is your best friend here. Under this treaty, dividend TDS can be reduced to 10-15% instead of 20%.
To claim this benefit, you must submit these documents to the dividend-paying company:
Document | Purpose |
|---|---|
Tax Residency Certificate (TRC) | Proves UAE residence |
Form 10F | Self-declaration for DTAA |
No PE Declaration | Confirms no permanent establishment in India |
Many NRIs skip this paperwork and lose money unnecessarily. The process takes 15-20 minutes and can save thousands annually.
India has DTAA agreements with over 90 countries. Check your country's specific treaty rates on the Income Tax Department portal.
Top Dividend-Paying Sectors in India
Certain sectors consistently deliver higher dividends. Based on Business Standard's December 2025 analysis, PSU stocks dominate:
Company | Sector | Dividend Yield |
|---|---|---|
Coal India | Mining | 7% |
REC Ltd | Power Finance | 6% |
ONGC | Oil & Gas | 5% |
Power Finance Corp | Infrastructure | 5% |
BPCL | Oil & Gas | 5% |
PSUs (Public Sector Undertakings) lead because the government, as majority shareholder, relies on dividend income. Companies like Coal India, ONGC, and NTPC have paid dividends consistently for decades.
IT Giants like TCS and Infosys combine growth with regular dividends. Their strong cash reserves support sustainable payouts.
Banking & NBFCs such as HDFC Bank and SBI offer moderate yields with growth potential.
👉 Tip: A dividend yield above 8-9% often signals trouble. The stock price may have crashed, inflating the yield artificially. Always check the company's fundamentals.
How to Evaluate Dividend Stocks
Don't chase yield blindly. Here's what we recommend checking:
Dividend Consistency: Look for companies with 5+ years of unbroken dividend history. One-time high payouts don't indicate reliability.
Payout Ratio: This shows what percentage of profits goes to dividends. A ratio between 30-70% is sustainable. Above 80% means the company might struggle during tough years.
Earnings Stability: Companies with volatile earnings often cut dividends during downturns. Stable sectors like utilities and FMCG fare better.
Debt Levels: Highly leveraged companies prioritize debt repayment over dividends. Check the debt-to-equity ratio before investing.
How NRIs Can Start Investing
Unlike mutual funds that don't require special approvals, direct stock investment needs the Portfolio Investment Scheme (PIS).
Step 1: Open an NRI Bank Account You need an NRE or NRO account with a bank authorized for PIS. Most major banks offer this.
Step 2: Get PIS Approval Apply for PIS permission from your bank. This is an RBI-mandated scheme that tracks NRI stock transactions. Processing takes 1-2 weeks.
Step 3: Open Demat and Trading Accounts Link these to your PIS-enabled bank account. Many brokers now offer online account opening for NRIs.
Step 4: Complete KYC Submit passport, visa, overseas address proof, and PAN card. Some brokers offer doorstep document pickup in the UAE.
👉 Tip: NRIs cannot do intraday trading. You can only buy stocks on delivery basis, meaning you must take actual ownership.
Dividend Mutual Funds: An Easier Alternative
If PIS approval and stock selection feel overwhelming, consider dividend-focused mutual funds.
These funds invest in a basket of dividend-paying stocks, giving you diversification without individual stock picking. Options include:
IDCW Plans: Income Distribution cum Capital Withdrawal plans pay out dividends periodically. However, each payout is taxed at your slab rate.
Dividend Yield Funds: These actively-managed funds target high-dividend stocks. The Nifty Dividend Opportunities 50 Index delivered 65.72% returns over three years, combining dividend income with capital appreciation.
NRIs don't need PIS approval for mutual funds, making them more accessible. You can invest through your regular NRE/NRO account.
Key Risks to Consider
Dividend investing isn't risk-free:
Dividend Cuts: Companies can reduce or skip dividends during tough times. Even Coal India reduced payouts during low coal demand periods.
Currency Risk: Dividends are paid in INR. If the rupee depreciates against USD/AED, your effective returns reduce.
Sector Concentration: Most high-yield stocks cluster in PSUs, energy, and commodities. These sectors face cyclical challenges.
Tax Complexity: Managing TDS, DTAA claims, and ITR filing requires attention. Consider professional tax help for larger portfolios.
Your Next Step
Dividend stocks offer NRIs a practical way to earn regular income from India while building long-term wealth. Start with financially stable companies that have consistent payout histories. Use DTAA benefits to minimize your tax outgo.
Not sure where to begin? Join our WhatsApp community where 15,000+ NRIs discuss investment strategies daily. Download the Belong app to explore all your India investment options in one place.
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