Chapter XIII - Determination of Tax in Special Cases
Section 209
Section 209: tax on non-resident income from bonds or GDRs purchased in foreign currency
Section 209 sets special flat rates for a non-resident's interest income on certain notified bonds, dividend income on certain Global Depository Receipts (GDRs), and long-term capital gains from transferring either, all where purchased in foreign currency.
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This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) The income-tax payable, on the total income of an assessee, being a non-resident, which includes income specified in column B of the Table below, shall be the aggregate of income-tax computed at the rate specified in the column C applied on the corresponding income specified in column B.
| Sl. No. | Income | Rate of income-tax payable |
|---|---|---|
| 1 | From interest on–– (a) bonds of an Indian company issued as per such scheme as may be notified by the Central Government; or (b) bonds of a public sector company sold by the Government, and purchased in foreign currency. | 10% |
| 2 | From dividends on Global Depository Receipts— (a) issued as per such scheme as may be notified by the Central Government against the initial issue of shares of an Indian company and purchased in foreign currency through an approved intermediary; or (b) issued against the shares of a public sector company sold by the Government and purchased by him in foreign currency through an approved intermediary; or (c) issued or re-issued as per a scheme as may be notified by the Central Government, against the existing shares of an Indian company purchased in foreign currency through an approved intermediary. | 10% |
| 3 | Long-term capital gains arising from the transfer of bonds referred to against serial number 1 or Global Depository Receipts referred to against serial number 2. | 12.5% |
| 4 | Total income as reduced by income referred to against serial numbers 1 to 3. | Rates in force. |
(2) Where the gross total income of the non-resident— (a) consists only of income by way of interest or dividends in respect of–– (i) bonds referred to in sub-section (1) (Table: Sl. No. 1); or (ii) Global Depository Receipts referred to in sub-section (1) (Table: Sl. No. 2), no deduction shall be allowed under sections 28 to 58, 60 and 61 or section 93(1)(a) or (e) or under Chapter VIII; (b) includes any income referred to in sub-section (1) (Table: Sl. No. 1) to (Table: Sl. No. 3),–– (i) the gross total income shall be reduced by the such income; and (ii) the deduction under Chapter VIII shall be allowed as if the gross total income so reduced, were the gross total income of the assessee.
(3) The provisions of section 72(6) shall not apply for computation of long-term capital gains arising out of the transfer of long-term capital asset being bonds or Global Depository Receipts referred to in sub-section (1) (Table: Sl. No. 3).
(4) It shall not be necessary for a non-resident to furnish a return of his income under section 263(1), if— (a) his total income during the tax year consisted only of income referred to in sub-sections (1) (Table: Sl. No. 1) and (Table: Sl. No. 2); and (b) the tax deductible at source under the provisions of Chapter XIX-B has been deducted from such income.
(5) Where the assessee acquired Global Depository Receipts or bonds in an amalgamated or resulting company by virtue of his holding Global Depository Receipts or bonds in the amalgamating or demerged company, as the case may be, as per the provisions of sub-section (1), the provisions of that sub-section shall apply to such Global Depository Receipts or bonds.
(6) For the purposes of this section,–– (a) “approved intermediary” means an intermediary which is approved as per a scheme as may be notified by the Central Government; and (b) “Global Depository Receipts” shall have the meaning assigned to it in section 193(4)(a).
Introduction
Section 209 gives separate treatment to a non-resident’s specified foreign-currency-purchased bonds and Global Depository Receipts. The interest or dividend rows and the transfer-gain row are not interchangeable.
The provision also contains a limited return-filing exception where only the listed interest or dividend income is received and tax has been deducted.
Key takeaways
Non-resident bonds and GDRs
Specified interest, dividend and capital gains from foreign-currency-purchased bonds or Global Depository Receipts use this section’s separate rates.
No capital-gain indexation
The indexation rule in section 72(6) does not apply to the covered long-term transfer gains.
Limited return exception
A non-resident with only the specified interest or dividend income and deducted tax may qualify for the stated return-filing exception.
The rates
Where a non-resident'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 |
|---|---|
| Interest on bonds of an Indian company issued under a Central Government-notified scheme, or bonds of a public sector company sold by the Government, purchased in foreign currency | 10% |
| Dividends on Global Depository Receipts issued under a Central Government-notified scheme (against the initial issue of an Indian company's shares, against shares of a public sector company sold by the Government, or issued/re-issued against existing shares of an Indian company), purchased in foreign currency through an approved intermediary | 10% |
| Long-term capital gains from transfer of the bonds or GDRs described above | 12.5% |
| Total income as reduced by the above categories | Rates in force |
Deduction restrictions
If the non-resident's gross total income consists only of interest and/or dividend income described above, no deduction is allowed under sections 28 to 58, 60 and 61, section 93(1)(a) or (e), or Chapter VIII.
If the gross total income includes any of the interest, dividend or long-term capital gains described above, the gross total income is first reduced by that income, and Chapter VIII deductions are then allowed as if the reduced amount were the gross total income.
No indexation, and other rules
The indexation provision (section 72(6)) does not apply when computing long-term capital gains on these bonds or GDRs.
A non-resident need not furnish a return of income under section 263(1) if the total income for the year consisted only of the interest and dividend income described above, and tax was deducted at source from that income.
Where the assessee acquired GDRs or bonds in an amalgamated or resulting company because of holding GDRs or bonds in the amalgamating or demerged company, the same tax treatment continues to apply to the new GDRs or bonds.
Key definitions
| Term | Meaning |
|---|---|
| "Approved intermediary" | An intermediary approved under a Central Government-notified scheme |
| "Global Depository Receipts" | As defined in section 193(4)(a) |
Step-by-step flow for applying Section 209
- 1
Is the assessee a non-resident?
- No: Section 209 does not apply.
- Yes: Go to the next step.
- 2
Is the income from notified bonds of an Indian company, or Government-sold PSU bonds, purchased in foreign currency?
Interest on these bonds is taxed at 10% (Table Sl. No. 1).
- 3
Is the income dividend on Global Depository Receipts purchased in foreign currency through an approved intermediary under the notified schemes?
Dividend on these GDRs is taxed at 10% (Table Sl. No. 2). GDRs or bonds received on amalgamation or demerger in place of qualifying ones are also covered (Section 209(5)).
- 4
Is there long-term capital gain on transfer of these bonds or GDRs?
Taxed at 12.5%, computed without Section 72(6) (Section 209(3)).
- 5
Is a return required?
- Only interest or dividend under Sl. No. 1 and 2, and TDS deducted: No return under Section 263(1) is required (Section 209(4)).
- Otherwise (for example, long-term capital gains): File a return; the balance of total income is taxed at the rates in force.
Practical checklist
Do
- Retain the notified bond or GDR scheme records and proof of foreign-currency purchase.
- Separate interest, dividends, long-term gains and other income before applying rates.
Avoid
- Use the special treatment for a bond or receipt outside the listed scheme.
Illustrative example
Worked example: a non-resident with bond interest, GDR dividend and a GDR gain
Hypothetical facts (illustration only, not a real taxpayer): Mr. Lee, a non-resident, holds notified bonds of an Indian company and GDRs issued under a notified scheme, both bought in foreign currency (the GDRs through an approved intermediary). In the tax year he earns bond interest of ₹8,00,000, GDR dividend of ₹2,00,000 and a long-term capital gain of ₹6,00,000 on selling some GDRs.
Interest at 10%
₹8,00,000 x 10% = ₹80,000.
Dividend at 10%
₹2,00,000 x 10% = ₹20,000.
Long-term capital gain at 12.5%
₹6,00,000 x 12.5% = ₹75,000, with the gain computed without Section 72(6).
Total
₹80,000 + ₹20,000 + ₹75,000 = ₹1,75,000.
Outcome
- Tax under Section 209 is ₹1,75,000.
- Because his income includes a long-term capital gain, the Section 209(4) exemption from filing a return is not available, even if tax was deducted on the interest and dividend.
- Surcharge and cess, if applicable, are outside this illustration.
Glossary
- Global Depository Receipts
- As defined in Section 193(4)(a) (Section 209(6)(b)).
- Approved intermediary
- An intermediary approved under a scheme notified by the Central Government (Section 209(6)(a)).
- Purchased in foreign currency
- A condition for each covered bond and GDR; income from instruments bought otherwise falls outside Section 209.
Frequently asked questions
Does a non-resident need to file a return for this income?
Not necessarily - if total income for the year consisted only of the interest and dividend income described in Section 209, and tax was deducted at source, no return under section 263(1) is required.
Does indexation apply to long-term capital gains on these bonds/GDRs?
No - Section 209(3) disapplies the indexation benefit under section 72(6) for these gains.
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