Section 193 — GDR Income KB Industry Employees | ITA 2025

Section 193 — - TAX ON GDR INCOME OF RESIDENT KNOWLEDGE-BASED-INDUSTRY EMPLOYEES

Section 193 is the substantive equivalent of 1961 s. 115ACA -- the SPECIAL CONCESSIONAL TAX REGIME for resident-individual employees of Indian KNOWLEDGE-BASED-INDUSTRY companies who hold GLOBAL DEPOSITORY RECEIPTS (GDRs) acquired under company-issued ESOPs. The provision recognises the cross-border ESOP-GDR architecture used by Indian IT / pharma / biotech companies (Infosys / Wipro / TCS / Dr Reddys / Biocon historically) -- where employees receive GDR-tradable instruments via overseas depository bank as their stock-based compensation. Section 193 grants TWO concessional rates: (i) 10% on dividend income from such GDRs; (ii) 12.5% on LTCG from transfer of GDRs (post FA 2024 alignment with general LTCG rate). Designed to incentivise retention of high-skill talent in India's knowledge-based industries. Specified categories: IT software / IT service / entertainment / pharma / biotech / CG-notified.

Statutory text — Income-tax Act, 2025

Marginal note -- Tax on income arising from GDR purchased in foreign currency by resident employee

(1) Where the total income of an assessee, being an individual, who is a resident and an employee of an Indian company engaged in specified knowl- edge based industry or service or an employee of its subsidiary engaged in specified knowledge based industry or service (hereafter in this section referred to as the resident employee), includes income specified in column B of the Table below, the income-tax payable shall be the aggregate of income-tax computed at the rate speci- fied in the column C applied on the corresponding income specified in column B.

TABLE Sl. Income Rate of Income- No. tax payable

A B C

1. Income from dividend on Global Depository Receipts 10% of an Indian company engaged in specified knowledge based industry or service, issued as per such Employees’ Stock Option Scheme as the Central Government may, by notification41, specify in this behalf and purchased by him in foreign currency.

2. Income from long-term capital gains arising from the 12.5% transfer of Global Depository Receipts referred to in serial number 1.

3. Total income as reduced by income referred to in serial Rates in force. numbers 1 and 2.

(2) Where the gross total income of the resident employee—

(a) consists only of income by way of dividends in respect of Global Depository Receipts referred to in sub-section (1) (Table: Sl. No. 1), no deduction shall be allowed to him under any other provision of this Act;

(b) includes any income referred to in sub-section (1) (Table: Sl. No. 1 or 2),—

(i) the gross total income shall be reduced by such income; and

(ii) the deduction under any provision of this Act shall be allowed as if the gross total income as so reduced were the gross total income of the assessee.

(3) The section 72(6) shall not apply for computation of long-term capital gains arising out of the transfer of long-term capital asset, being Global Depository Receipts referred to in sub-section (1) (Table: Sl. No. 2).

(4) For the purposes of this section,—

(a) “Global Depository Receipts” means any instrument in the form of a depository receipt or certificate (by whatever name called) created by the Overseas Depository Bank outside India or in an International Financial Services Centre and issued to investors against the issue of,—

(i) ordinary shares of issuing company, being a company listed on a recognised stock exchange in India; or

(ii) foreign currency convertible bonds of issuing company; or

(iii) ordinary shares of issuing company, being a company incorporated outside India, if such depository receipt or certificate is listed and traded on any International Financial Services Centre;

(b) “information technology service” means any service which results from the use of any information technology software over a system of infor- mation technology products for realising value addition;

(c) “information technology software” means any representation of instruc- tions, data, sound or image, including source code and object code, recorded in a machine readable form and capable of being manipulated or providing inter-activity to a user, by means of an automatic data pro- cessing machine falling under heading information technology products but does not include non-information technology products;

(d) “Overseas Depository Bank” means a bank authorised by the issuing company to issue Global Depository Receipts against issue of Foreign Currency Convertible Bonds or ordinary shares of the issuing company;

(e) “specified knowledge based industry or service” means—

(i) information technology software; or

(ii) information technology service; or

(iii) entertainment service; or

(iv) pharmaceutical industry; or

(v) bio-technology industry; or

(vi) any other industry or service, as specified by the Central Govern- ment, by notification;

(f) “subsidiary” shall have the same meaning as assigned to it in section 2(87) of the Companies Act, 2013 (18 of 2013) and includes subsidiary incorporated outside India. Tax on certain incomes. [Ss. 115B, 115BB, 115BBF, 115BBG, 115BBH and 115BBJ of the 1961 Act]

Corresponding provision — 1961 regime

INCOME-TAX ACT, 2025	INCOME-TAX ACT, 1961
INCOME-TAX ACT, 2025 -- s. 193	INCOME-TAX ACT, 1961 -- s. 115ACA
Sub-s. (1) Sl. 1 -- 10% on GDR dividend (resident employee)	1961 s. 115ACA(1)(a)
Sub-s. (1) Sl. 2 -- 12.5% on LTCG from GDR transfer (post FA 2024)	1961 s. 115ACA(1)(b)
Sub-s. (1) Sl. 3 -- balance income at applicable rates	1961 s. 115ACA(2)
Sub-s. (2) -- gross-total-income carve-out	1961 s. 115ACA(2)(b)
Sub-s. (3) -- s. 72(6) FX-conversion not applicable for GDR LTCG	1961 s. 115ACA(3)
Sub-s. (4) -- definitions: GDR / IT service / IT software / Overseas Depository Bank / specified knowledge-based industry / subsidiary	1961 s. 115ACA Explanation

STATUTORY ARCHITECTURE

ELIGIBLE ASSESSEE: (a) Individual; (b) RESIDENT in India; (c) EMPLOYEE of: (i) Indian company engaged in specified knowledge-based industry / service, OR (ii) its SUBSIDIARY (including foreign subsidiary -- s. 2(87) Companies Act 2013 + extension to overseas-incorporated). ELIGIBLE INCOME: GDRs of the Indian company issued PER COMPANY ESOP SCHEME (CG-notified) AND PURCHASED IN FOREIGN CURRENCY by employee. GDR DEFINITION (sub-s. 4(a)): instrument issued by Overseas Depository Bank outside India or IFSC against issue of: (i) ordinary shares of issuing company listed on Indian recognised stock exchange; (ii) FCCBs of issuing company; (iii) ordinary shares of foreign-incorporated company listed on IFSC. Critical: post-FA 2020 / FA 2023 expansion to include IFSC-listed instruments. OVERSEAS DEPOSITORY BANK (sub-s. 4(d)): bank authorised by issuing company to issue GDRs against FCCBs / shares. Common: Citibank / Bank of New York Mellon historically. SPECIFIED KNOWLEDGE-BASED INDUSTRY / SERVICE (sub-s. 4(e)): (i) IT software; (ii) IT service; (iii) ENTERTAINMENT service; (iv) PHARMACEUTICAL industry; (v) BIO-TECHNOLOGY industry; (vi) CG-notified other industries / services. SUB-S. (1) RATES: Sl. 1 -- DIVIDEND on GDR: 10% (concessional vs slab rate which would otherwise apply). Sl. 2 -- LTCG from GDR transfer: 12.5% (post FA 2024 -- aligned with general LTCG rate). Sl. 3 -- BALANCE total income (other than Sl. 1/2): rates in force (slab / new regime / etc.). SUB-S. (2) ANTI-DOUBLE-DEDUCTION: (a) If GTI consists ONLY of GDR-dividend (Sl. 1), no further deduction allowed; (b) If GTI INCLUDES Sl. 1 / 2 income: GTI reduced by that income; further deductions allowed as if reduced GTI were total. SUB-S. (3) FX-CONVERSION NOT AVAILABLE: s. 72(6) NR foreign-currency-conversion does NOT apply to GDR LTCG -- this is a domestic-resident concession; FX-CG benefit unnecessary.

PRACTITIONER RELEVANCE

Used by Indian IT / pharma / biotech companies that ROADSHOW-LISTED in foreign markets via GDR / ADR programs (Infosys ADR on NYSE; Wipro ADR; Dr Reddys / Reliance ADRs etc.). Employee-ESOPs structured to issue GDRs (rather than direct shares) for cross-border tax-treatment / liquidity. Resident employees holding such GDRs benefit from s. 193 concessional rates. POST FA 2024 ALIGNMENT: GDR-LTCG at 12.5% aligns with s. 197 / s. 198 LTCG rates -- so the LTCG-side benefit is now neutral. Dividend at 10% remains concessional vs slab rates (where slab would be 30% + cess at high-income employee level). FA 2020 IFSC EXPANSION: GDRs of foreign-incorporated companies listed on IFSC also covered -- emerging area for IFSC-route instruments. Practitioner: verify (i) employer's industry classification matches sub-s. 4(e) categories; (ii) GDR issuance under CG-notified ESOP scheme; (iii) foreign-currency purchase documentation; (iv) Overseas Depository Bank authority confirmation.

PLANNING NOTES

(i) ELIGIBILITY VERIFICATION -- (a) employer in specified KB industry; (b) GDR under CG-notified ESOP scheme; (c) FX purchase by employee. (ii) DIVIDEND OPTIMISATION -- 10% concessional rate vs full slab; significant savings for top-bracket employees. (iii) LTCG TIMING -- post-FA 2024 12.5% aligned with general; planning around timing less critical. (iv) ANTI-DEDUCTION CARVE-OUT -- where GTI reduced for Sl. 1/2 income, other deductions on reduced GTI; track separately. (v) FOREIGN-EMPLOYER SUBSIDIARY -- foreign subsidiary covered (sub-s. 4(f) extended definition); cross-border employment ok. (vi) DOCUMENTATION -- ESOP grant letter; CG ESOP scheme notification; GDR purchase confirmation; FX remittance evidence (Form A2 etc.).

CROSS-REFERENCES

Section 17(1)(d) -- ESOP perquisite valuation.
Section 67 -- CG charge.
Section 72(6) -- NR FX conversion (NOT available; sub-s. 3).
Section 197 -- General LTCG rates.
Section 198 -- STT-paid listed equity LTCG (separate regime).
Section 122 -- GTI definition.
Section 263 -- Return-filing due date.
Companies Act 2013 s. 2(87) -- subsidiary definition.
CBDT ESOP scheme notifications.

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