Now comes the part that most investors find a little surprising.

Dividends from US companies are taxed before the money even reaches your account.

When a US company pays a dividend to a non-US investor, the United States automatically deducts 25% as withholding tax.

You do not have to file anything for this to happen. It is built into the system.

If Johnson & Johnson declares $100 in dividends in your name, the flow looks like this:

• $25 goes directly to the US Treasury
• $75 reaches your brokerage account

The deduction happens at the source, so what you see in your account is already the post-tax amount.

How India taxes the same dividend

India does not look at the $75 you received. It looks at the original $100 dividend, the amount before US withholding ($25).

That gross dividend is added to your total income and taxed at your applicable income tax slab.

So if you are in the 30% tax bracket, the Indian tax calculation becomes:

30% of $100 = $30

But you have already paid $25 to the US.

If nothing else existed, this would mean paying tax twice on the same income. But it is not the case.

The mechanism that prevents double taxation

India allows something called a Foreign Tax Credit (FTC).

This allows you to claim credit for the tax already paid in the United States against your Indian tax liability on the same income.

In the example above:

• Indian tax liability: $30
• Tax already paid in the US: $25
• Additional tax payable in India: $5

So the final outcome looks like this:

One important filing detail

To claim the foreign tax credit in India, there is one procedural step that needs to be done.

You must file Form 67 on the income tax portal.

Form 67 needs to be submitted before you file your income tax return (ITR) for that year. Only after that can the credit for taxes paid in the US be claimed in your return.

If Form 67 is not filed, the foreign tax credit is not allowed. In that situation, India will tax the entire gross dividend at your slab rate, without recognising the 25% that was already deducted in the US.