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 (broadly ten per cent), 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 Chapter VI-A deduction and no section 48 provisos for the bond/GDR gains. Sub-section (3): return-filing relief where income is only the specified income. Sub-section (4)/Explanation: continuity of the GDR regime on conversion and definitions, by reference to the notified scheme.
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.
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
Statutory text verified against the Income-tax Act, 1961 (Bare Act, as amended by the Finance Act, 2025), Chapter XII section 115AC; cross-checked for FA 2026 against the firm's amendment tracker (no change). Marginal heading reproduced verbatim: 'Tax on income from bonds or Global Depository Receipts purchased in foreign currency or capital gains arising from their transfer.' Cross-reference authority verified: Union of India v. Azadi Bachao Andolan (2003) 263 ITR 706 (SC); read with section 90(2) and the notified Depository Receipts Scheme.
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.
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
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 (broadly ten per cent), 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 Chapter VI-A deduction and no section 48 provisos for the bond/GDR gains. Sub-section (3): return-filing relief where income is only the specified income. Sub-section (4)/Explanation: continuity of the GDR regime on conversion and definitions, by reference to the notified scheme.
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
Statutory text verified against the Income-tax Act, 1961 (Bare Act, as amended by the Finance Act, 2025), Chapter XII section 115AC; cross-checked for FA 2026 against the firm's amendment tracker (no change). Marginal heading reproduced verbatim: 'Tax on income from bonds or Global Depository Receipts purchased in foreign currency or capital gains arising from their transfer.' Cross-reference authority verified: Union of India v. Azadi Bachao Andolan (2003) 263 ITR 706 (SC); read with section 90(2) and the notified Depository Receipts Scheme.
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.