Income Tax 2025

Appearance

Tax on income from Global Depository Receipts purchased in foreign currency or capital gains arising from their transfer. ​

193(1) ​

Where the total income of an assessee, being an individual, who is a resident and an employee of an Indian company engaged in specified knowledge based industry or service, or an employee of its subsidiary engaged in specified knowledge based industry or service (hereafter in this section referred to as the resident employee), includes income specified in column B of the Table below, the income-tax payable shall be the aggregate of income-tax specified in the column C thereof. ----Table----

193(2) ​

Where the gross total income of the resident employee—

  • (a) consists only of income by way of dividends in respect of Global Depository Receipts referred to in sub-section (1)(Table: Sl. No. 1), no deduction shall be allowed to him under any other provision of this Act;
  • (b) includes any income referred to in sub-section (1)(Table: Sl. No. 1) and (Table: Sl. No. 2),–– (i) the gross total income shall be reduced by such income; and (ii) the deduction under any provision of this Act shall be allowed as if the gross total income as so reduced were the gross total income of the assessee.

193(3) ​

The section 72(6) shall not apply for computation of long-term capital gains arising out of the transfer of long-term capital asset, being Global Depository Receipts referred to in sub-section (1)(Table: Sl. No. 2).

193(4) ​

In this section,—

  • (a) “Global Depository Receipts” means any instrument in the form of a depository receipt or certificate (by whatever name called) created by the Overseas Depository Bank outside India or in an International Financial Services Centre and issued to investors against the issue of,— (i) ordinary shares of issuing company, being a company listed on a recognised stock exchange in India; or (ii) foreign currency convertible bonds of issuing company; (iii) ordinary shares of issuing company, being a company incorporated outside India, if such depository receipt or certificate is listed and traded on any International Financial Services Centre;
  • (b) “information technology service” means any service which results from the use of any information technology software over a system of information technology products for realising value addition;
  • (c) “information technology software” means any representation of instructions, data, sound or image, including source code and object code, recorded in a machine readable form and capable of being manipulated or providing inter-activity to a user, by means of an automatic data processing machine falling under heading information technology products but does not include non-information technology products;
  • (d) “Overseas Depository Bank” means a bank authorised by the issuing company to issue Global Depository Receipts against issue of Foreign Currency Convertible Bonds or ordinary shares of the issuing company;
  • (e) “specified knowledge based industry or service” means— (i) information technology software; (ii) information technology service; (iii) entertainment service; (iv) pharmaceutical industry; (v) bio-technology industry; and (vi) any other industry or service, as specified by the Central Government, by notification; and
  • (f) “subsidiary” shall have the same meaning as assigned to it in section 2(87) of the Companies Act, 2013 and includes subsidiary incorporated outside India.
Explanation

Section Summary: ​

This section deals with the taxation of income earned by resident employees of Indian companies (or their subsidiaries) engaged in specified knowledge-based industries or services. The income in question includes dividends from Global Depository Receipts (GDRs) and capital gains from their transfer. The section provides specific tax treatment for such income, including how deductions and gross total income are to be computed.

Key Changes: ​

  1. New Tax Treatment for GDR Income: The section introduces a specific tax treatment for income from GDRs, including dividends and capital gains, for resident employees in specified industries.
  2. Exclusion of Section 72(6): Long-term capital gains from the transfer of GDRs are exempt from the application of Section 72(6), which typically deals with the carry-forward and set-off of losses.
  3. Definition of Key Terms: The section provides detailed definitions for terms like "Global Depository Receipts," "Overseas Depository Bank," and "specified knowledge-based industry or service."

Practical Implications: ​

  1. For Employees: Resident employees in specified industries (e.g., IT, pharmaceuticals, biotechnology) who receive income from GDRs will have their tax liability calculated based on the specific rates provided in the table. They will also need to adjust their gross total income and deductions accordingly.
  2. For Employers: Companies in specified industries must ensure their employees are aware of the tax implications of GDR income and provide necessary documentation for compliance.
  3. Compliance Burden: Taxpayers must accurately report GDR-related income and ensure that deductions are computed correctly, as per the reduced gross total income.

Critical Concepts: ​

  1. Global Depository Receipts (GDRs): These are financial instruments issued by an Overseas Depository Bank, representing shares or bonds of an Indian or foreign company. They are traded on international markets.
  2. Specified Knowledge-Based Industries: These include IT software, IT services, entertainment, pharmaceuticals, biotechnology, and any other industries notified by the Central Government.
  3. Gross Total Income Adjustment: If a taxpayer has income from GDRs, their gross total income is reduced by this amount before applying deductions under other provisions of the Income Tax Act.

Compliance Steps: ​

  1. Identify GDR Income: Determine if any income (dividends or capital gains) is derived from GDRs.
  2. Adjust Gross Total Income: Reduce the gross total income by the GDR-related income before applying deductions.
  3. Compute Tax Liability: Use the tax rates specified in the table for GDR-related income and aggregate it with other tax liabilities.
  4. Maintain Documentation: Keep records of GDR transactions, including purchase, sale, and dividend receipts, for accurate reporting.

Examples: ​

  1. Scenario 1: An employee in an IT company receives ₹10 lakh as dividends from GDRs and ₹15 lakh as salary. Under this section, the ₹10 lakh GDR income will be taxed at the specified rate, and the gross total income for deductions will be reduced to ₹15 lakh.
  2. Scenario 2: An employee in a pharmaceutical company sells GDRs and earns ₹20 lakh as long-term capital gains. This gain will not be subject to Section 72(6), and the tax will be computed as per the rates in the table.

This section ensures that income from GDRs is taxed appropriately while providing clarity on deductions and gross total income adjustments for resident employees in specified industries.