Section 209 of the Income-tax Act, 2025: Tax on Bonds and Global Depository Receipts for Non-Residents
Section 209 of the Income-tax Act, 2025 provides a special tax regime for specified income of a non-resident from qualifying bonds purchased in foreign currency, Global Depository Receipts (GDRs), and long-term capital gains arising from their transfer. It corresponds to former Section 115AC of the Income-tax Act, 1961.
What does Section 209 cover?
Section 209 is in Chapter XIII of the Income-tax Act, 2025, which deals with determination of tax in special cases. The section applies to an assessee who is a non-resident and whose total income includes one or more of the specified categories of bond or GDR income described below.
1. Interest on specified bonds
The special rate applies to interest from 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 the qualifying bonds are purchased in foreign currency.
2. Dividends on qualifying Global Depository Receipts
The provision covers dividends on qualifying GDRs issued under the prescribed or notified framework, including GDRs against an initial issue of shares of an Indian company, specified public sector company shares sold by the Government, and qualifying issues or re-issues against existing shares of an Indian company. The statutory conditions concerning purchase in foreign currency through an approved intermediary must be satisfied.
3. Long-term capital gains
Long-term capital gains arising from transfer of the qualifying bonds or GDRs covered by Section 209 are taxed at the special rate specified in the section.
Tax rates under Section 209
| Nature of income | Rate |
|---|---|
| Interest on qualifying bonds purchased in foreign currency | 10% |
| Dividends on qualifying Global Depository Receipts | 10% |
| Long-term capital gains from transfer of qualifying bonds or GDRs | 12.5% |
| Balance of total income after excluding the above specified income | Rates in force |
The rates above are the statutory special rates. Applicable surcharge and health and education cess, and any treaty or other provision relevant to the taxpayer, should be examined separately.
Deductions and computation rules
Section 209 restricts deductions against the specially taxed income. Where the gross total income consists only of the specified interest or dividend income, the deductions identified by Section 209(2) are not allowed. Where the gross total income also contains other income, the specified Section 209 income is first excluded for the purpose of computing deductions from the remaining gross total income under the applicable provisions.
For long-term capital gains on the qualifying bonds or GDRs, Section 209(3) excludes the capital-gains computation rule referred to in Section 72(6) of the Income-tax Act, 2025. In practical terms, the special capital-gains computation and rate prescribed for this category must be applied rather than assuming ordinary indexation treatment.
When is a non-resident not required to file a return under this section?
Section 209(4) provides a limited return-filing relaxation. A non-resident need not furnish a return under Section 263(1) where the total income for the tax year consists only of the qualifying interest and dividend income referred to in Section 209(1), and the tax deductible at source under Chapter XIX-B has been deducted from that income.
Amalgamation and demerger cases
Where an assessee acquires qualifying GDRs or bonds in an amalgamated or resulting company because of holdings in the amalgamating or demerged company, Section 209(5) continues the application of the special provision to the replacement GDRs or bonds, subject to the statutory conditions.
Definitions under Section 209
Approved intermediary
An approved intermediary means an intermediary approved in accordance with a scheme notified by the Central Government.
Global Depository Receipts
For Section 209, Global Depository Receipts have the meaning assigned in Section 193(4)(a) of the Income-tax Act, 2025. In broad terms, that provision describes a depository receipt or certificate created by an Overseas Depository Bank outside India or in an International Financial Services Centre and issued to investors against specified underlying securities, subject to the statutory conditions.
Former Section 115AC of the Income-tax Act, 1961
Before 1 April 2026, this subject was governed by Section 115AC of the Income-tax Act, 1961. That provision also applied to specified income of non-residents from qualifying foreign-currency bonds and GDRs. Following the Finance (No. 2) Act, 2024, the special rate on long-term capital gains under former Section 115AC was 10% for transfers before 23 July 2024 and 12.5% for transfers on or after 23 July 2024.
The former provision also contained restrictions on deductions, a special capital-gains computation rule, a conditional relaxation from filing a return, and rules for qualifying securities received on amalgamation or demerger. For a transaction or assessment governed by the 1961 Act, the applicable historical text, amendment date and transition provisions should be checked rather than applying Section 209 retrospectively.
Official Income Tax sources
For the current statutory text and transition mapping, refer to the official Income Tax Department resources:
- Income-tax Act, 2025 - official Income Tax Department portal
- Income-tax Act, 2025 - official consolidated PDF
- Former Section 115AC - official Income Tax Department text
- Official provision navigator - 1961 Act to 2025 Act
Disclaimer: This article is for general legal and tax information. Tax consequences depend on the facts, residential status, nature of the security, transaction date, applicable treaty and other provisions in force for the relevant tax year.