Sections 196C and 196D: TDS on GDR and FII Securities Income
Sections 196C and 196D of the Income-tax Act, 1961 dealt with withholding tax on specified income from foreign currency bonds, Global Depository Receipts and securities income of Foreign Institutional Investors and specified funds. From 1 April 2026, the corresponding TDS rules are consolidated in Section 393 of the Income Tax Act, 2025.
Section 196C: Foreign currency bonds and Global Depository Receipts
Under Section 196C of the Income-tax Act, 1961, where income by way of interest or dividends in respect of bonds or Global Depository Receipts referred to in Section 115AC, or long-term capital gains arising from transfer of such bonds or Global Depository Receipts, was payable to a non-resident, the payer was required to deduct income-tax at the earlier of credit or payment.
The historical provision prescribed a 10% TDS rate. Later amendments to the capital gains regime must, however, be considered for transactions occurring during the amended period rather than relying only on the original text of Section 196C.
Meaning of Global Depository Receipt
A Global Depository Receipt, commonly called a GDR, is a negotiable instrument issued through a depository mechanism representing underlying shares or securities. For the special non-resident tax regime, only bonds or GDRs satisfying the conditions of the applicable statutory provision qualify.
Section 196D: Securities income of Foreign Institutional Investors
Section 196D applied where specified securities income referred to in Section 115AD was payable to a Foreign Institutional Investor. Income by way of interest covered separately by Section 194LD was excluded from this withholding rule.
The payer deducted tax at the earlier of credit of the covered income to the payee or payment by any mode. The statutory rate for the covered securities income of a Foreign Institutional Investor was 20%, subject to the provisions governing treaty relief and other applicable requirements.
Specified funds
Section 196D also contained a separate rule for specified funds covered by the statutory definition. Covered securities income payable to such a specified fund was subject to deduction at 10%, while no deduction was required in respect of income that was exempt under the applicable specified-fund exemption provision.
Capital gains under historical Section 196D
Section 196D(2) specifically provided that no tax was to be deducted under that section from capital gains arising from transfer of securities referred to in Section 115AD and payable to a Foreign Institutional Investor. This no-TDS rule did not itself mean that the capital gain was exempt from income-tax; chargeability and the applicable tax rate were determined under the relevant substantive provisions.
Income Tax Act, 2025: corresponding Section 393 provisions
| Income | Current provision | TDS treatment |
|---|---|---|
| Interest or dividends in respect of bonds or Global Depository Receipts referred to in Section 209 | Section 393(2), Table Sl. No. 13 | 10% |
| Long-term capital gains from transfer of bonds or Global Depository Receipts referred to in Section 209 | Section 393(2), Table Sl. No. 14 | 12.5% |
| Income in respect of securities referred to in Section 210(1), Table Sl. No. 1, payable to a Foreign Institutional Investor | Section 393(2), Table Sl. No. 15 | Rate determined under the applicable note to the Section 393 table, including treaty treatment where the statutory conditions are met |
| Income in respect of securities referred to in Section 210(1), Table Sl. No. 1, payable to a specified fund | Section 393(2), Table Sl. No. 16 | 10% |
Section 209: Foreign currency bonds and GDRs under the 2025 Act
Section 209 of the Income Tax Act, 2025 carries the special taxation framework for specified income of non-residents from qualifying bonds and Global Depository Receipts. The corresponding TDS entries in Section 393 distinguish ordinary interest or dividend income from long-term capital gains, applying 10% and 12.5% respectively.
Section 210: Foreign Institutional Investors and specified funds
Section 210 provides the current special tax framework for Foreign Institutional Investors and specified funds. For a Foreign Institutional Investor, income in respect of securities covered by Section 210(1), Table Sl. No. 1 is generally taxed within that special framework, while capital gains are governed by the separate rates and conditions applicable to their category.
A Foreign Institutional Investor for this purpose is an investor specified by the Central Government under the Act. Foreign Portfolio Investors registered under the applicable SEBI framework have historically been brought within this tax framework through notification, subject to the terms of the governing law.
DTAA relief
Where a non-resident is entitled to relief under an applicable Double Taxation Avoidance Agreement, the payer should examine the treaty together with the domestic law, Tax Residency Certificate and other prescribed documentation. The withholding rate may be affected where the Act expressly permits application of the treaty rate and the required conditions are satisfied.
1961 Act and 2025 Act transition
| Income-tax Act, 1961 | Income Tax Act, 2025 from 1 April 2026 |
|---|---|
| Section 196C read with Section 115AC | Section 393(2), Sl. Nos. 13 and 14 read with Section 209 |
| Section 196D read with Section 115AD | Section 393(2), Sl. Nos. 15 and 16 read with Section 210 |
Practical compliance points
- Identify whether the recipient is a non-resident, Foreign Institutional Investor or qualifying specified fund.
- Determine whether the payment is interest, dividend, other securities income or capital gains.
- For GDR and bond income, verify that the instrument satisfies the conditions of the applicable special provision.
- For transactions governed by the 2025 Act, use Section 393 together with Sections 209 or 210, as applicable.
- Do not treat a no-TDS rule on capital gains as an exemption from tax unless a separate exemption provision applies.
- Where treaty relief is claimed, verify the applicable DTAA and prescribed residency and beneficial-ownership documentation.
Official references
- Income Tax Department - Income Tax Act, 2025 and Rules, 2026
- Income Tax Department - Section 393
- Income Tax e-Filing Portal
- Securities and Exchange Board of India
This article provides general tax information. The applicable Act, tax year, instrument, recipient status, nature of income, treaty, rate, surcharge, cess, rules and notifications should be verified for the particular transaction.