Section 209 Income Tax Act 2025: How Are Bonds and Global Depository Receipts Taxed?
Section 209 prescribes special income-tax rates for non-residents earning specified interest on foreign-currency-purchased bonds, dividends on Global Depository Receipts (GDRs), and long-term capital gains on their transfer.
What tax rates apply under Section 209(1)?
For a qualifying non-resident, income-tax is computed separately on the following categories and aggregated. Other taxable income is charged at the rates in force.
| Type of income | Statutory rate |
|---|---|
| Interest on qualifying Indian-company or public-sector-company bonds purchased in foreign currency | 10% |
| Dividends on qualifying GDRs purchased in foreign currency through an approved intermediary | 10% |
| Long-term capital gains on transfer of those qualifying bonds or GDRs | 12.5% |
| Remaining taxable income | Rates in force |
These are base statutory rates; surcharge and cess, if applicable, and any treaty relief require separate examination.
Which bonds and GDRs qualify?
Eligible bonds
Section 209(1), Table serial number 1, covers interest on bonds of an Indian company issued under a scheme notified by the Central Government, or bonds of a public sector company sold by the Government, where purchased in foreign currency.
Eligible Global Depository Receipts
Table serial number 2 covers dividends on GDRs issued under notified schemes against initial or existing shares of an Indian company, or against shares of a public sector company sold by the Government, subject to the specified purchase in foreign currency through an approved intermediary. Re-issued GDRs are covered where the notified scheme permits.
How does Section 209 restrict deductions?
Section 209(2): deductions
Where gross total income consists only of the specified bond interest or GDR dividends, deductions under sections 28 to 58, 60 and 61, section 93(1)(a) or (e), and Chapter VIII are not allowed. Where gross total income includes the special-rate income specified in Table serial numbers 1 to 3 alongside other income, the special-rate income is excluded from gross total income for calculating Chapter VIII deductions on the balance.
Section 209(3): capital gains computation
Section 72(6) does not apply when computing long-term capital gains on transfer of the qualifying bonds or GDRs described in Section 209(1), Table serial number 3.
When is a non-resident exempt from filing a return?
Under Section 209(4), a non-resident need not furnish a return under Section 263(1) if both conditions are satisfied:
- Total income for the tax year consists only of the specified bond interest and/or GDR dividends under Table serial numbers 1 and 2; and
- Tax deductible at source under Chapter XIX-B has been deducted from that income.
This exception does not itself extend to long-term capital gains under Table serial number 3 or to other income.
Section 209(5): amalgamation and demerger
Where qualifying bonds or GDRs are acquired in an amalgamated or resulting company by virtue of holdings in an amalgamating or demerged company, Section 209(1) continues to apply to those instruments, subject to the statutory conditions.
Relevant statutory definitions
Illustrative income-tax calculations
Example 1: A non-resident earns Rs. 2,00,000 interest from qualifying bonds. Base income-tax at 10% is Rs. 20,000, before applicable surcharge and cess.
Example 2: A non-resident earns Rs. 4,00,000 in qualifying long-term capital gains from GDRs. Base income-tax at 12.5% is Rs. 50,000, before applicable surcharge and cess.
These simplified examples assume all eligibility conditions are satisfied and do not determine the final tax liability.
Frequently asked questions
Does Section 209 apply to residents?
No. Section 209(1) expressly addresses an assessee who is a non-resident.
What is the tax rate on eligible GDR dividends?
The specified rate is 10%, subject to the conditions in Section 209(1).
What is the rate on long-term gains from qualifying GDRs or bonds?
The rate specified in the Section 209(1) table is 12.5%.
Does TDS always eliminate the return-filing requirement?
No. The narrow exception under Section 209(4) requires the non-resident to have only qualifying interest and/or dividend income and the prescribed tax deduction at source.
Official statutory source
Updated: 11 November 2026. This article is general legal information and should be read with the statutory text, applicable notifications and treaty provisions.