Income Tax 2025

Appearance

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

209(1) ​

The income -tax payable, on the total income of an assessee, being a non- resident, which includes income specified in column B of the Table below, shall be the aggregate of the amounts mentioned in column C thereof. --Table--

209(2) ​

Where the gross total income of the non-resident—

  • (a) consists only of income by way of interest or dividends in respect of–– (i) bonds referred to in sub-section (1) (Table: Sl. No. 1); or sub-section (1); or (ii) Global Depository Receipts referred to in sub-section (1) (Table: Sl. No. 2), no deduction shall be allowed under sections 26 to 61 or section 93(1)(a) or 93(1)(e) or under Chapter VIII;
  • (b) includes any income referred to in sub-section (1) (Table: Sl. No. 1) to (Table: Sl. No. 3),–– (i) the gross total income shall be reduced by the such income; and (ii) the deduction under Chapter VIII shall be allowed as if the gross total income so reduced, were the gross total income of the assessee.

209(3) ​

The provisions of section 72(6) shall not apply for computation of long-term capital gains arising out of the transfer of long-term capital asset being bonds or Global Depository Receipts referred to in sub-section (1) (Table: Sl. No. 3).

209(4) ​

It shall not be necessary for a non-resident to furnish a return of his income under section 263(1), if—

  • (a) his total income during the tax year consisted only of income referred to in sub-sections (1) (Table: Sl. No. 1) and (Table: Sl. No. 2); and
  • (b) the tax deductible at source under the provisions of Chapter XIX-B has been deducted from such income.

209(5) ​

Where the assessee acquired Global Depository Receipts or bonds in an amalgamated or resulting company by virtue of his holding Global Depository Receipts or bonds in the amalgamating or demerged company, as the case may be, as per the provisions of sub-section (1), the provisions of that sub-section shall apply to such Global Depository Receipts or bonds.

209(6) ​

In this section,––

  • (a) “approved intermediary” means an intermediary which is approved as per a scheme notified by the Central Government; and
  • (b) “Global Depository Receipts” shall have the meaning assigned to it in section 190(4)(a).
Explanation

Section Summary: ​

This section deals with the taxation of income earned by non-residents from bonds or Global Depository Receipts (GDRs) purchased in foreign currency, as well as capital gains arising from their transfer. It specifies how such income is taxed, the deductions allowed, and the compliance requirements for non-residents.

Key Changes: ​

  1. Taxation of Non-Residents: The section introduces specific rules for taxing income from bonds and GDRs held by non-residents, including interest, dividends, and capital gains.
  2. No Deductions for Certain Incomes: If a non-resident's income consists solely of interest or dividends from bonds or GDRs, no deductions under sections 26 to 61, 93(1)(a), 93(1)(e), or Chapter VIII are allowed.
  3. Exclusion of Long-Term Capital Gains Provisions: Long-term capital gains from the transfer of bonds or GDRs are exempt from the provisions of section 72(6), which typically govern the computation of such gains.
  4. Simplified Compliance: Non-residents with income only from bonds or GDRs (and where tax has been deducted at source) are exempt from filing a tax return under section 263(1).
  5. Treatment of GDRs/Bonds in Amalgamation/Demerger: If a non-resident acquires GDRs or bonds in an amalgamated or resulting company due to holding them in the amalgamating or demerged company, the same tax provisions apply.

Practical Implications: ​

  1. For Non-Residents: Non-residents earning income from bonds or GDRs will face specific tax treatment, with limited deductions available. They may also benefit from simplified compliance if their income is solely from these sources and tax has been deducted at source.
  2. For Businesses: Companies issuing bonds or GDRs to non-residents must ensure proper tax deduction at source (TDS) to avoid non-compliance issues.
  3. Capital Gains Treatment: Non-residents selling bonds or GDRs will not be able to apply the provisions of section 72(6) for long-term capital gains, potentially affecting their tax liability.

Critical Concepts: ​

  1. Global Depository Receipts (GDRs): These are financial instruments representing shares in a foreign company, traded on international exchanges. They allow non-residents to invest in Indian companies without directly holding shares.
  2. Approved Intermediary: An intermediary approved by the Central Government to facilitate transactions involving bonds or GDRs.
  3. Tax Deduction at Source (TDS): Tax deducted by the payer (e.g., the company issuing bonds or GDRs) before making payments to the non-resident.

Compliance Steps: ​

  1. For Non-Residents:
    • Ensure that tax has been deducted at source on income from bonds or GDRs.
    • If income is solely from bonds or GDRs and TDS has been applied, no tax return filing is required under section 263(1).
  2. For Businesses:
    • Deduct TDS on payments of interest, dividends, or capital gains to non-residents.
    • Maintain proper documentation of transactions involving bonds or GDRs.

Examples: ​

  1. Example 1: A non-resident earns ₹10 lakh as interest from bonds issued by an Indian company. The company deducts TDS at 20% (₹2 lakh). Since the non-resident's income is only from bonds and TDS has been applied, they are not required to file a tax return.
  2. Example 2: A non-resident sells GDRs held for more than 3 years, resulting in long-term capital gains of ₹50 lakh. The gains are taxed without applying the provisions of section 72(6), meaning no indexation benefit is available.

This section simplifies tax compliance for non-residents while ensuring proper taxation of income from bonds and GDRs.