Mechanism: The payer of section 115AC interest/dividend or long-term gains on foreign-currency bonds/GDRs to a non-resident deducts 10%, subject to treaty relief.
Litigation profile: None. A narrow scheme-specific provision — the candour rule applies.
A. SECTION COMMENTARY
Section 196C requires any person responsible for paying to a non-resident any income by way of interest or dividend in respect of bonds or Global Depository Receipts (GDRs) referred to in section 115AC, or any long-term capital gains arising from their transfer, to deduct income-tax at ten per cent. It is the withholding counterpart of section 115AC, which taxes, at a concessional flat rate, the income and long-term gains of non-residents on foreign-currency bonds and GDRs of Indian companies (and public-sector companies).
Foreign-currency bonds and GDRs
The provision gives effect, at the deduction stage, to the policy of attracting foreign capital through foreign-currency-denominated instruments by guaranteeing a low, predictable withholding on the resulting income and gains. Like sections 196B and 196D, it is keyed to a specific Chapter XII charge (here section 115AC) and applies only to the enumerated instruments and income, subject to any more beneficial treaty rate.
Why authority is absent — candour
The provision is narrow, concessional and scheme-specific, with no body of judicial authority. In candour, it is applied from its terms read with section 115AC and the general chargeable-sum and treaty principles.
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Editorial markers “***” denote text omitted by the Legislature.
196C. Where any income by way of interest or dividends in respect of bonds or Global Depository Receipts referred to in section 115AC or by way of long-term capital gains arising from the transfer of such bonds or Global Depository Receipts is payable to a non-resident, the person responsible for making the payment shall, at the time of credit of such income to the account of the payee or at the time of payment thereof by any mode, whichever is earlier, deduct income-tax thereon 7-at the rate of—
(a) ten per cent in respect of income by way of interest or dividends in respect of bonds or Global Depository Receipts referred to in section 115AC;
(b) ten per cent in respect of long-term capital gains arising from transfer of such bond or Global Depository Receipts referred to in section 115AC which takes place before the 23rd day of July, 2024;
(c) twelve and one-half per cent in respect of long-term capital gains arising from transfer of such bond or Global Depository Receipts referred to in section 115AC which takes place on or after the 23rd day of July, 2024.
C. AUTHORITIES
Candour rule observed: section 196C is a narrow, scheme-specific provision with no merits authority. The statutory scheme (with section 115AC) is offered.
Statutory backdrop and cognate principles
Charge under section 115AC (foreign-currency bonds/GDRs)
Principle: Section 196C withholds at 10% on interest/dividend and long-term gains on foreign-currency bonds and GDRs referred to in section 115AC, matching that charge, subject to any more beneficial treaty rate.
Use: Locates the provision within the GDR/foreign-currency-bond regime.
GE India Technology Centre (P) Ltd. v. CIT (2010) 327 ITR 456 (SC) — cognate
Principle: Withholding attaches only to sums chargeable to tax under the Act, read for non-residents with the treaty.
Use: Frames the chargeability enquiry underlying the section 196C deduction.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.
CHAPTER XVII — COLLECTION AND RECOVERY OF TAX · B.—DEDUCTION AT SOURCE
Section 196C — Income from Foreign Currency Bonds or GDRs (Tax Deducted at Source)
Case Laws & Commentary · Income-tax Act, 1961 (as amended by the Finance Act, 2026) · bharattax.co Treatise
Status: Live. Concessional, non-resident-facing; unlitigated.
Finance Act, 2026: No amendment.
Mechanism: The payer of section 115AC interest/dividend or long-term gains on foreign-currency bonds/GDRs to a non-resident deducts 10%, subject to treaty relief.
Litigation profile: None. A narrow scheme-specific provision — the candour rule applies.
A. SECTION COMMENTARY
Section 196C requires any person responsible for paying to a non-resident any income by way of interest or dividend in respect of bonds or Global Depository Receipts (GDRs) referred to in section 115AC, or any long-term capital gains arising from their transfer, to deduct income-tax at ten per cent. It is the withholding counterpart of section 115AC, which taxes, at a concessional flat rate, the income and long-term gains of non-residents on foreign-currency bonds and GDRs of Indian companies (and public-sector companies).
Foreign-currency bonds and GDRs
The provision gives effect, at the deduction stage, to the policy of attracting foreign capital through foreign-currency-denominated instruments by guaranteeing a low, predictable withholding on the resulting income and gains. Like sections 196B and 196D, it is keyed to a specific Chapter XII charge (here section 115AC) and applies only to the enumerated instruments and income, subject to any more beneficial treaty rate.
Why authority is absent — candour
The provision is narrow, concessional and scheme-specific, with no body of judicial authority. In candour, it is applied from its terms read with section 115AC and the general chargeable-sum and treaty principles.
B. STATUTORY POSITION (verbatim text)
Reproduced from the Income-tax Act, 1961 as amended up to the Finance Act, 2025 (the Finance Act, 2026 makes no amendment to this section). Editorial markers “***” denote text omitted by the Legislature.
196C. Where any income by way of interest or dividends in respect of bonds or Global Depository Receipts referred to in section 115AC or by way of long-term capital gains arising from the transfer of such bonds or Global Depository Receipts is payable to a non-resident, the person responsible for making the payment shall, at the time of credit of such income to the account of the payee or at the time of payment thereof by any mode, whichever is earlier, deduct income-tax thereon 7-at the rate of—
(a) ten per cent in respect of income by way of interest or dividends in respect of bonds or Global Depository Receipts referred to in section 115AC;
(b) ten per cent in respect of long-term capital gains arising from transfer of such bond or Global Depository Receipts referred to in section 115AC which takes place before the 23rd day of July, 2024;
(c) twelve and one-half per cent in respect of long-term capital gains arising from transfer of such bond or Global Depository Receipts referred to in section 115AC which takes place on or after the 23rd day of July, 2024.
C. AUTHORITIES
Candour rule observed: section 196C is a narrow, scheme-specific provision with no merits authority. The statutory scheme (with section 115AC) is offered.
Statutory backdrop and cognate principles
Charge under section 115AC (foreign-currency bonds/GDRs)
Principle: Section 196C withholds at 10% on interest/dividend and long-term gains on foreign-currency bonds and GDRs referred to in section 115AC, matching that charge, subject to any more beneficial treaty rate.
Use: Locates the provision within the GDR/foreign-currency-bond regime.
GE India Technology Centre (P) Ltd. v. CIT (2010) 327 ITR 456 (SC) — cognate
Principle: Withholding attaches only to sums chargeable to tax under the Act, read for non-residents with the treaty.
Use: Frames the chargeability enquiry underlying the section 196C deduction.
Compiled for the bharattax.co Treatise on the Income-tax Act, 1961 (as amended by the Finance Act, 2026). Statutory text is reproduced verbatim from the bare Act; case-law citations have been web-verified. Where a section is new, narrow or substantially unlitigated, the candour rule is observed — the absence of direct authority is stated and only genuinely cognate authority is offered. This digest is for professional reference and is not a substitute for the official report of any judgment.