Section 193
Section 193: tax on GDR income of resident employees in knowledge-based industries
Section 193 gives a concessional, flat tax treatment to a resident individual who is an employee of an Indian company (or its subsidiary) in a specified knowledge-based industry, where that employee holds Global Depository Receipts (GDRs) issued under an Employees' Stock Option Scheme and purchased in foreign currency.
This explanation is AI-assisted and pending review by our CA/CS team. It is general information, not professional advice - always cross-check against the bare law text above or talk to our tax team for guidance specific to your situation.
Who this section applies to
The section applies to a resident individual who is an employee of an Indian company engaged in a specified knowledge-based industry or service, or an employee of that company's subsidiary engaged in such an industry or service (referred to in the section as the "resident employee").
The special rates
Where the resident employee's total income includes the income below, tax is computed at these flat rates on that income, with the rest of the total income taxed at the rates otherwise in force:
| Income | Rate of income-tax payable |
|---|---|
| Dividend on Global Depository Receipts of an Indian company engaged in a specified knowledge-based industry or service, issued under a Central Government-notified Employees' Stock Option Scheme and purchased by the employee in foreign currency | 10% |
| Long-term capital gains from transfer of the Global Depository Receipts described above | 12.5% |
| Total income as reduced by the above two categories of income | Rates in force |
Deduction restrictions
If the resident employee's gross total income consists only of the dividend income described above, no deduction is allowed to him under any other provision of the Act.
If the gross total income includes the dividend income and/or the long-term capital gains described above along with other income, the gross total income is first reduced by that GDR-related income, and deductions under any other provision are then allowed as if the reduced amount were the gross total income.
No indexation on the long-term capital gains
The indexation provision (section 72(6)) does not apply when computing the long-term capital gains arising from transfer of these Employees' Stock Option GDRs.
Key definitions
The section defines several terms for its own purposes:
- "Global Depository Receipts" - an instrument in the form of a depository receipt or certificate created by an Overseas Depository Bank outside India (or in an International Financial Services Centre) and issued against ordinary shares of an Indian listed company, foreign currency convertible bonds, or (if listed and traded in an International Financial Services Centre) ordinary shares of a company incorporated outside India.
- "Specified knowledge based industry or service" - information technology software, information technology service, entertainment service, the pharmaceutical industry, the bio-technology industry, or any other industry/service notified by the Central Government.
- "Overseas Depository Bank" - a bank authorised by the issuing company to issue GDRs against Foreign Currency Convertible Bonds or ordinary shares of the issuing company.
- "Subsidiary" - as defined in section 2(87) of the Companies Act, 2013, and includes a subsidiary incorporated outside India.
Frequently asked questions
Who can use the special rates in Section 193?
Only a resident individual who is an employee of an Indian company (or its subsidiary) engaged in a specified knowledge-based industry or service, and who holds Employees' Stock Option Scheme GDRs of that company purchased in foreign currency.
What tax rate applies to dividends on these GDRs?
10%, taxed separately from the rest of the employee's total income.
What tax rate applies to long-term capital gains on transfer of these GDRs?
12.5%, computed without the benefit of indexation under section 72(6).
Related sections
Want this applied to your actual filing, not just explained?
Plan your GDR/ESOP tax position with our tax teamLast updated 9 September 2026