Section 209 — Tax on income from bonds or Global Depository Receipts purchased in foreign currency or capital gains arising from their transfer. Successor to s.115AC of the 1961 Act.
Section 209 is in Chapter XIII — Determination of Tax in Special Cases, which runs from section 190 to section 235.
Sub-section (1) works through a four-row Table: for a non-resident, interest on notified bonds of an Indian company or on public sector company bonds sold by the Government, purchased in foreign currency, is taxed at 10%; dividends on Global Depository Receipts issued under a notified scheme and purchased in foreign currency through an approved intermediary are taxed at 10%; long-term capital gains on transfer of those bonds or GDRs are taxed at 12.5%; and the balance of total income is taxed at the rates in force. Sub-section (2) restricts deductions — where gross total income consists only of the row 1 or row 2 interest or dividends, nothing is allowed under sections 28 to 58, 60 and 61, section 93(1)(a) or (e), or Chapter VIII; where it merely includes row 1 to row 3 income, that income is stripped out first and Chapter VIII deductions are computed on the reduced figure. Sub-section (3) disapplies section 72(6) in computing the row 3 long-term capital gains. Sub-section (4) relieves the non-resident of the section 263(1) return where his total income consisted only of row 1 and row 2 income and tax was deducted at source under Chapter XIX-B. Sub-sections (5) and (6) carry the section over to GDRs or bonds received in an amalgamated or resulting company in place of holdings in the amalgamating or demerged company, and define "approved intermediary" and "Global Depository Receipts".
It gives foreign-currency investors in Indian bonds and Global Depository Receipts a fixed low rate instead of the ordinary rates, and pays for it by shutting off the deductions that would otherwise reduce that income. The return exemption in sub-section (4) completes the design: for an investor with nothing but this income, withholding is the final tax.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Rate on interest from notified Indian company bonds or Government-sold public sector company bonds | 10% | Non-resident, and the bonds must have been purchased in foreign currency | 209(1), Table Sl. No. 1 |
| Rate on dividends from Global Depository Receipts | 10% | GDRs issued under a notified scheme against initial issue or existing shares of an Indian company, or against shares of a public sector company sold by the Government, and purchased in foreign currency through an approved intermediary | 209(1), Table Sl. No. 2 |
| Rate on long-term capital gains on transfer of those bonds or GDRs | 12.5% | Applies only to long-term capital gains on the assets in Table rows 1 and 2; section 72(6) does not apply to the computation | 209(1), Table Sl. No. 3 with 209(3) |
| Rate on the remainder of total income | The rates in force | Total income as reduced by the income in Table rows 1 to 3 | 209(1), Table Sl. No. 4 |
Look up your income in the Table and apply the row rate; anything outside rows 1 to 3 falls back to the rates in force, so a mixed portfolio is taxed in parts. The foreign-currency purchase requirement and, for GDRs, purchase through an approved intermediary are conditions of the rate, not descriptive detail — fail either and the row does not apply. Deductions are the trap: if this is your only income you get nothing under sections 28 to 58, 60 and 61, section 93(1)(a) or (e) or Chapter VIII, and if it is part of a larger income the Chapter VIII deduction is computed only on the rest. If your income for the year was only bond interest or gdr dividends and tax was withheld under Chapter XIX-B, you need not file a return under section 263(1).
A non-resident who bought bonds of an Indian company issued under a notified scheme, paying in foreign currency, receives interest of Rs. 80 lakh in the year and sells part of the holding at a long-term capital gain of Rs. 1 crore. Table row 1 taxes the interest at 10% and row 3 taxes the long-term gain at 12.5%, with section 72(6) switched off for that computation by sub-section (3). Because the capital gain is there, sub-section (2)(b) requires this income to be stripped out of gross total income before any Chapter VIII deduction is computed, and the return relief in sub-section (4) is lost too, since it covers only a total income consisting solely of row 1 and row 2 income on which tax has been deducted. Had the gain been short-term, the 12.5% row would not have touched it — row 3 is confined to long-term capital gains on those bonds and Global Depository Receipts.
In the non-resident investor’s return of income and its assessment — or, where sub-section (4) applies, in no return at all, withholding under Chapter XIX-B then being the end of the matter. What decides which row applies is the notified scheme under which the bonds or Global Depository Receipts were issued and the evidence of purchase in foreign currency, through an approved intermediary in the case of the receipts.
shall be the aggregate of income-tax computed at the rate specified in the column C applied on the corresponding income specified in column B
See the full 1961 to 2025 concordance.
See the notifications index.
