Section 115ACA applies to a resident individual who is an employee of an Indian company engaged in a specified knowledge based industry or service, or of its subsidiary engaged in such an industry or service. Those industries are information technology software or service, entertainment service, pharmaceuticals, bio-technology and any other notified industry or service.
It covers dividends on Global Depository Receipts of such a company, issued under an Employees' Stock Option Scheme notified by the Central Government and purchased by the employee in foreign currency. Those dividends are taxed at ten per cent. Long-term gains on transfer of the receipts are taxed at ten per cent 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").
Operative consequences
If gross total income consists only of such dividends, no deduction is allowed under any other provision of the Act (s. 115ACA(2)(a)).
Otherwise, deductions are allowed as if gross total income were reduced by the dividends and gains.
Long-term gains on the receipts are computed without the first and second provisos to s. 48 (s. 115ACA(3)).
Status
Section 115ACA is operative for AY 2026-27. The Finance Act, 2026 does not amend it.
s. 193 reproduces the section, with 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. 193.
Case Laws & Commentary
SECTION 115ACA — TAX ON INCOME FROM 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 115ACA grants a special flat-rate regime to a resident individual who is or was an employee of an Indian company (or its subsidiary engaged in specified knowledge-based industry or service), in respect of Global Depository Receipts of the company issued under a notified Employees' Stock Option Scheme and purchased in foreign currency, and of long-term capital gains on their transfer. The dividends on such GDRs and the LTCG on their transfer are taxed at the flat rate fixed by the section (ten per cent), with the tax on the balance income computed separately.
The provision is the resident-employee counterpart to section 115AC: it extends rate certainty on employer GDRs to resident employees who acquired them under an ESOP, recognising the foreign-currency character of the acquisition. The specified income is taxed on a gross basis, and the section 48 provisos do not apply to the GDR gains.
A.2 Sub-section / clause taxonomy
Sub-section (1): the charge - dividends on the ESOP GDRs and LTCG on their transfer at the flat rate, plus tax on the balance income. Sub-section (2): no Chapter VI-A deduction and no section 48 provisos for the GDR gains. Explanation: defines 'Global Depository Receipts', the qualifying ESOP, 'overseas depository bank', and the knowledge-based industries/services to which it applies.
A.3 Core doctrinal themes
Theme (1) - Resident-employee eligibility: the concession is confined to a resident individual who is/was an employee, holding GDRs of the employer under a notified ESOP - a narrow, defined class.
Theme (2) - ESOP and foreign-currency nexus: the GDRs must be issued under the notified ESOP and purchased in foreign currency to qualify.
Theme (3) - Gross-basis flat rate: rate certainty is paired with the denial of deductions and of section 48 indexation/forex on the gains.
Section 115ACA was inserted to extend the GDR rate regime to resident employees under employer ESOPs, complementing section 115AC for non-residents. It has remained substantially stable, tracking the GDR and ESOP frameworks.
Finance Act 2026: no amendment. The resident-employee GDR rate regime continues unchanged for AY 2026-27 onward.
A.5 CA practitioner pointers
(1) Confirm resident-employee status and that the GDRs were issued under the notified ESOP and acquired in foreign currency. (2) Apply the flat rate on a gross basis; do not give section 48 reliefs on the GDR gains. (3) Reconcile with the salary-perquisite taxation of the ESOP at the time of allotment, to avoid double counting of the same value.
B. FINANCE ACT, 2026 - IMPACT NOTE
Section 115ACA is NOT amended by the Finance Act, 2026. The resident-employee GDR special-rate scheme continues unchanged for AY 2026-27 onward.
C. CASE LAW - CLUSTERED BY ISSUE
Candid note on the case-law field: Section 115ACA addresses a narrow class (resident employees holding employer GDRs under a notified ESOP) and has a negligible dedicated reported case-law field; its disputes, where they arise, concern eligibility and the interface with ESOP perquisite taxation, and are resolved on first principles and the statutory definitions. Consistent with the accuracy discipline of this treatise, no case is cited under this section rather than attaching off-point authority; the position is stated candidly.
D. PRACTITIONER'S NOTE
Section 115ACA is a narrow, eligibility-gated concession for resident employees: verify ESOP-GDR status and foreign-currency acquisition, apply the flat gross-basis rate without section 48 reliefs, and align the treatment with the perquisite taxation of the underlying ESOP to prevent double taxation of the same value.
E. SOURCES & CITATIONS
Statutory text verified against the Income-tax Act, 1961 (Bare Act, as amended by the Finance Act, 2025), Chapter XII section 115ACA; cross-checked for FA 2026 against the firm's amendment tracker (no change). Marginal heading reproduced verbatim: 'Tax on income from Global Depository Receipts purchased in foreign currency or capital gains arising from their transfer.'
Caveat: Treatise-style commentary for practitioners and academic use; not legal opinion. Verify the current statutory text, the notified ESOP/GDR framework and the latest CBDT/appellate position before relying on any proposition.
Function in the statutory architecture
Section 115ACA applies to a resident individual who is an employee of an Indian company engaged in a specified knowledge based industry or service, or of its subsidiary engaged in such an industry or service. Those industries are information technology software or service, entertainment service, pharmaceuticals, bio-technology and any other notified industry or service.
It covers dividends on Global Depository Receipts of such a company, issued under an Employees' Stock Option Scheme notified by the Central Government and purchased by the employee in foreign currency. Those dividends are taxed at ten per cent. Long-term gains on transfer of the receipts are taxed at ten per cent 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").
Operative consequences
Status
Section 115ACA is operative for AY 2026-27. The Finance Act, 2026 does not amend it.
s. 193 reproduces the section, with 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. 193.
Case Laws & Commentary
SECTION 115ACA — TAX ON INCOME FROM 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 115ACA grants a special flat-rate regime to a resident individual who is or was an employee of an Indian company (or its subsidiary engaged in specified knowledge-based industry or service), in respect of Global Depository Receipts of the company issued under a notified Employees' Stock Option Scheme and purchased in foreign currency, and of long-term capital gains on their transfer. The dividends on such GDRs and the LTCG on their transfer are taxed at the flat rate fixed by the section (ten per cent), with the tax on the balance income computed separately.
The provision is the resident-employee counterpart to section 115AC: it extends rate certainty on employer GDRs to resident employees who acquired them under an ESOP, recognising the foreign-currency character of the acquisition. The specified income is taxed on a gross basis, and the section 48 provisos do not apply to the GDR gains.
A.2 Sub-section / clause taxonomy
Sub-section (1): the charge - dividends on the ESOP GDRs and LTCG on their transfer at the flat rate, plus tax on the balance income. Sub-section (2): no Chapter VI-A deduction and no section 48 provisos for the GDR gains. Explanation: defines 'Global Depository Receipts', the qualifying ESOP, 'overseas depository bank', and the knowledge-based industries/services to which it applies.
A.3 Core doctrinal themes
Theme (1) - Resident-employee eligibility: the concession is confined to a resident individual who is/was an employee, holding GDRs of the employer under a notified ESOP - a narrow, defined class.
Theme (2) - ESOP and foreign-currency nexus: the GDRs must be issued under the notified ESOP and purchased in foreign currency to qualify.
Theme (3) - Gross-basis flat rate: rate certainty is paired with the denial of deductions and of section 48 indexation/forex on the gains.
A.4 Legislative evolution / Finance Act amendment trail
Section 115ACA was inserted to extend the GDR rate regime to resident employees under employer ESOPs, complementing section 115AC for non-residents. It has remained substantially stable, tracking the GDR and ESOP frameworks.
Finance Act 2026: no amendment. The resident-employee GDR rate regime continues unchanged for AY 2026-27 onward.
A.5 CA practitioner pointers
(1) Confirm resident-employee status and that the GDRs were issued under the notified ESOP and acquired in foreign currency. (2) Apply the flat rate on a gross basis; do not give section 48 reliefs on the GDR gains. (3) Reconcile with the salary-perquisite taxation of the ESOP at the time of allotment, to avoid double counting of the same value.
B. FINANCE ACT, 2026 - IMPACT NOTE
Section 115ACA is NOT amended by the Finance Act, 2026. The resident-employee GDR special-rate scheme continues unchanged for AY 2026-27 onward.
C. CASE LAW - CLUSTERED BY ISSUE
Candid note on the case-law field: Section 115ACA addresses a narrow class (resident employees holding employer GDRs under a notified ESOP) and has a negligible dedicated reported case-law field; its disputes, where they arise, concern eligibility and the interface with ESOP perquisite taxation, and are resolved on first principles and the statutory definitions. Consistent with the accuracy discipline of this treatise, no case is cited under this section rather than attaching off-point authority; the position is stated candidly.
D. PRACTITIONER'S NOTE
Section 115ACA is a narrow, eligibility-gated concession for resident employees: verify ESOP-GDR status and foreign-currency acquisition, apply the flat gross-basis rate without section 48 reliefs, and align the treatment with the perquisite taxation of the underlying ESOP to prevent double taxation of the same value.
E. SOURCES & CITATIONS
Statutory text verified against the Income-tax Act, 1961 (Bare Act, as amended by the Finance Act, 2025), Chapter XII section 115ACA; cross-checked for FA 2026 against the firm's amendment tracker (no change). Marginal heading reproduced verbatim: 'Tax on income from Global Depository Receipts purchased in foreign currency or capital gains arising from their transfer.'
Caveat: Treatise-style commentary for practitioners and academic use; not legal opinion. Verify the current statutory text, the notified ESOP/GDR framework and the latest CBDT/appellate position before relying on any proposition.