Section 115AC — NR Income from Foreign Currency Bonds…

STATUTORY ARCHITECTURE — 18-ROW MAP

Statutory text — Income-tax Act, 1961

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

115AC. (1) Where the total income of an assessee, being a non-resident, includes—

(a) income by way of interest on bonds of an Indian company issued in accordance with such scheme

as the Central Government may, by notification in the Official Gazette, specify in this behalf, or on

bonds of a public sector company sold by the Government, and purchased by him in foreign

currency; or

(b) income by way of dividends on Global Depository Receipts—

(i) issued in accordance with such scheme as the Central Govern-ment may, by notification in

the Official Gazette, specify in this behalf, against the initial issue of shares of an Indian

company and purchased by him in foreign currency through an approved intermediary; or

(ii) issued against the shares of a public sector company sold by the Government and

purchased by him in foreign currency through an approved intermediary; or

(iii) issued or re-issued in accordance with such scheme as the Central Government may, by

notification in the Official Gazette, specify in this behalf, against the existing shares of an

Indian company purchased by him in foreign currency through an approved intermediary;

(iv) [***]

(c) income by way of long-term capital gains arising from the transfer of bonds referred to in clause (a)

or, as the case may be, Global Depository Receipts referred to in clause (b),

the income-tax payable shall be the aggregate of—

(i) the amount of income-tax calculated on the income by way of interest or dividends, as the case

may be, in respect of bonds referred to in clause (a) or Global Depository Receipts referred to in

clause (b), if any, included in the total income, at the rate of ten per cent;

²⁹[(ii) the amount of income-tax calculated on the income by way of long-term capital gains referred to in

clause (c), if any, included in the total income,—

(A) at the rate of ten per cent for any transfer which takes place before the 23rd day of July,

2024; and

(B) at the rate of twelve and one-half per cent for any transfer which takes place on or after

the 23rd day of July, 2024; and]

(iii) the amount of income-tax with which the non-resident would have been chargeable had his total

income been reduced by the amount of income referred to in clauses (a), (b) and (c).

(2) Where the gross total income of the non-resident—

(a) consists only of income by way of interest or dividends in respect of bonds referred to in clause (a)

of sub-section (1) or, as the case may be, Global Depository Receipts referred to in clause (b) of

that sub-section, no deduction shall be allowed to him under sections 28 to 44C or clause (i) or

clause (iii) of section 57 or under Chapter VI-A;

(b) includes any income referred to in clause (a) or clause (b) or clause (c) of sub-section (1), the gross

total income shall be reduced by the amount of such income and the deduction under Chapter VI-A

shall be allowed as if the gross total income as so reduced, were the gross total income of the

assessee.

(3) Nothing contained in the first and second provisos to section 48 shall apply for the 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 clause (c) of sub-section (1).

(4) It shall not be necessary for a non-resident to furnish under sub-section (1) of section 139 a return of his

income if—

(a) his total income in respect of which he is assessable under this Act during the previous year

consisted only of income referred to in clauses (a) and (b) of sub-section (1); and

(b) the tax deductible at source under the provisions of Chapter XVII-B has been deducted from such

income.

(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, in accordance with the provisions of sub-section (1), the provisions of that

sub-section shall apply to such Global Depository Receipts or bonds.

Explanation.—For the purposes of this section,—

(a) "approved intermediary" means an intermediary who is approved in accordance with such scheme

as may be notified by the Central Government in the Official Gazette;

(b) "Global Depository Receipts" shall have the same meaning as in clause (a) of the Explanation to

section 115ACA.

Notes

29. Sub. by Act No. 15 of 2024, w.r.e.f. 23-7-2024.

Function in the statutory architecture

Section 115AC applies to a non-resident. It covers interest on bonds of an Indian company issued under a notified scheme, or bonds of a public sector company sold by the Government, purchased in foreign currency. It also covers dividends on Global Depository Receipts issued under a notified scheme against initial or existing shares of an Indian company, or against shares of a public sector company sold by the Government, purchased in foreign currency through an approved intermediary.

Interest and dividends are taxed at ten per cent. Long-term capital gains on transfer of the bonds or receipts are taxed at ten per cent for a transfer before the 23rd day of July, 2024 and twelve and one-half per cent on or after that date ("Sub. by Act No. 15 of 2024, w.r.e.f. 23-7-2024"). The rest of the total income is taxed as if it were the total income.

Operative consequences

If gross total income is only interest or dividends on these instruments, no deduction is allowed under ss. 28 to 44C, s. 57(i) or (iii), or Chapter VI-A.
Long-term gains on the bonds or receipts are computed without the first and second provisos to s. 48 (s. 115AC(3)).
No return under s. 139(1) is required if total income consists only of such interest or dividends and tax has been deducted at source (s. 115AC(4)).
Receipts or bonds acquired in an amalgamated or resulting company in exchange for qualifying holdings keep the benefit (s. 115AC(5)).

Status

Section 115AC is operative for AY 2026-27. The Finance Act, 2026 does not amend it.

s. 209 reproduces the section, with interest and dividends at 10% and long-term gains at 12.5%.

The 1961 Act governs AY 2026-27 and earlier assessment years; the Income-tax Act, 2025 governs tax year 2026-27 onwards. For this subject the 2025 Act provision is s. 209.

Case Laws & Commentary

SECTION 115AC — TAX ON INCOME FROM BONDS OR GLOBAL DEPOSITORY RECEIPTS PURCHASED IN FOREIGN CURRENCY OR CAPITAL GAINS ARISING FROM THEIR TRANSFER

Case Laws & Commentary (Income-tax Act, 1961 as amended by Finance Act, 2026)

A. SECTION COMMENTARY

A.1 Structural position & legislative purpose

Section 115AC prescribes a special flat-rate regime for a non-resident's income from, and capital gains on, bonds or Global Depository Receipts (GDRs) issued in accordance with a notified scheme and purchased in foreign currency. Where the total income of a non-resident includes interest or dividends on such bonds/GDRs, or long-term capital gains on their transfer, the tax is charged at the rates fixed by the section (ten per cent on the interest and dividends; on the long-term capital gains, ten per cent for transfers before 23 July 2024 and twelve and one-half per cent for transfers on or after that date), with the tax on the balance income computed separately. The scheme implements India's foreign-currency-convertible-bond (FCCB) and GDR fund-raising framework, giving overseas investors rate certainty on these instruments.

The income is taxed on a gross basis (no Chapter VI-A deduction; the section 48 first/second provisos do not apply to the bond/GDR gains), and a return-filing relief applies where the non-resident's India income is confined to such income suffered to tax at the section rates. The treaty-override under section 90(2) remains available.

A.2 Sub-section / clause taxonomy

Sub-section (1): the charge and rates - interest/dividends on the bonds/GDRs and LTCG on their transfer at the prescribed flat rate. Sub-section (2): no deduction under sections 28 to 44C, section 57(i)/(iii) or Chapter VI-A where gross total income consists only of the interest/dividends. Sub-section (3): no first/second provisos to section 48 for the bond/GDR gains. Sub-section (4): return-filing relief where income is only the interest/dividends and tax has been deducted at source. Sub-section (5)/Explanation: continuity of the regime for GDRs/bonds received on amalgamation or demerger, and definitions.

A.3 Core doctrinal themes

Theme (1) - Instrument and scheme nexus: the concession attaches to bonds/GDRs issued under the notified scheme and purchased in foreign currency; instruments outside the scheme do not qualify.

Theme (2) - Gross-basis flat rate with section 48 carve-out: the rate certainty is paired with denial of deductions and of indexation/forex on the gains.

Theme (3) - Continuity on conversion: the regime is designed to carry through the conversion of GDRs into underlying shares, with the cost and holding-period rules adapted accordingly.

A.4 Legislative evolution / Finance Act amendment trail

Section 115AC was inserted to support the GDR/FCCB fund-raising route and has been adjusted to track the notified Depository Receipts schemes and capital-gains reforms. It works alongside section 115ACA (GDRs of resident employees) and the FPI regime (section 115AD).

Finance Act 2026: no amendment. The bond/GDR special-rate scheme continues unchanged for AY 2026-27 onward.

A.5 CA practitioner pointers

(1) Confirm that the instrument is a bond/GDR under the notified scheme and was purchased in foreign currency. (2) Apply the flat rate on a gross basis; do not give section 48 indexation/forex on the gains. (3) On conversion of GDRs into shares, apply the special cost/holding-period rules. (4) Optimise against the applicable DTAA under section 90(2) with residency documentation.

B. FINANCE ACT, 2026 - IMPACT NOTE

Section 115AC is NOT amended by the Finance Act, 2026. The bond/GDR special-rate scheme continues unchanged for AY 2026-27 onward.

C. CASE LAW - CLUSTERED BY ISSUE

Cluster C-1 : Scheme nexus and treaty interaction (cross-references)

Union of India v. Azadi Bachao Andolan (2003) 263 ITR 706 (SC) (cross-reference - treaty override).

Held: A more beneficial DTAA prevails under section 90(2).

Relevance: Governs the rate where a treaty prescribes a lower charge than section 115AC on the relevant income.

Candid note on the case-law field: Section 115AC has a thin dedicated case-law field; disputes typically concern scheme eligibility, characterisation of the receipt and the cost/holding-period consequences of GDR conversion, and are resolved on the general principles of the section 115A family and the notified Depository Receipts scheme. The position is stated candidly; no citation has been invented under this section, and the cross-reference above is identified as such.

D. PRACTITIONER'S NOTE

Section 115AC is instrument-and-scheme specific: verify the bond/GDR qualifies under the notified scheme and was acquired in foreign currency, apply the flat gross-basis rate without section 48 reliefs, handle GDR-to-share conversion under the special cost rules, and optimise against the DTAA under section 90(2).

E. SOURCES & CITATIONS

Caveat: Treatise-style commentary for practitioners and academic use; not legal opinion. Verify the current statutory text, the notified scheme, the relevant DTAA and the latest CBDT/appellate position before relying on any proposition.

← ITA 1961 hub

Income-tax Act, 1961	Income-tax Act, 2025
s. 115AC(1): interest on notified bonds and dividends on Global Depository Receipts bought in foreign currency, and long-term gains on their transfer	s. 209(1), Table Sl. Nos. 1 to 4
s. 115AC(2): restriction of deductions	s. 209(2)
s. 115AC(3): first and second provisos to s. 48 not applied	s. 209(3)
s. 115AC(4) and (5): return not required; receipts acquired on amalgamation or demerger	s. 209(4) and (5)
Explanation: "approved intermediary" and "Global Depository Receipts"	s. 209(6), read with s. 193(4)(a)

Section 115AC — NR Income from Foreign Currency Bonds - GDR