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Leave Travel Allowance carry forward permitted, claimable in first year of next block under income tax rules.
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Exemption under section 10(38) available when transaction is on an IFSC exchange and consideration is in foreign currency.
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Comparison of Section 193 "Tax on income from Global Depository Receipts purchased in foreign currency or capital gains arising from their transfer." between the Income-Tax Act, 2025 (as passed) and the Income-Tax Bill, 2025 (as originally introduced)

4 September, 2025

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Section 193 Tax on income from Global Depository Receipts purchased in foreign currency or capital gains arising from their transfer.

Income-tax Act, 2025

At a Glance

The materials are two texts: (i) Section 193 of the Income-tax Act, 2025 (final statutory text) and (ii) Clause 193 of the Income Tax Bill, 2025 (Old Version). Both address tax treatment of income from Global Depository Receipts (GDRs) acquired in foreign currency by resident employees of certain knowledge-based Indian companies or their subsidiaries. The documents matter to resident individual employees, employers in specified industries, tax administrators and advisers. Effective date or enactment/decision date: Not stated in the document.

Background & Scope

Statutory hook: provision numbered 193 in the Income-tax Act, 2025 (and correspondingly in the Income Tax Bill, 2025 - Old Version). Subject-matter: special tax treatment and specified rates for income from dividends on GDRs purchased in foreign currency under employee stock schemes and long-term capital gains on transfer of such GDRs where the taxpayer is a resident individual employee of an Indian company engaged in specified knowledge-based industries or services or of its subsidiary. The texts define multiple terms for the purposes of the section/clause. Any additional statutory cross-references appearing: section 2(87) of the Companies Act, 2013 and section 72(6) of the Income-tax Act (reference to non-application). Other cross-references or rules: Not stated in the document.

Statutory Provision Mode

Text & Scope

The provision 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 its subsidiary (including foreign subsidiary). When such resident employee's total income includes certain GDR-related incomes, special tax treatment applies. The Table specifies three categories:

  • Dividend on GDRs of an Indian company issued under employee stock option schemes (as notified) and purchased in foreign currency - taxed at 10%.
  • Long-term capital gains (LTCG) from transfer of those GDRs - taxed at 12.5%.
  • Remaining total income (total income reduced by items 1 and 2) - taxed at "Rates in force" (i.e., regular applicable tax rates).

Definitions relevant to scope are provided in subsection (4). Notable definitions: "Global Depository Receipts," "Overseas Depository Bank," and categories of "specified knowledge based industry or service" (information technology software; information technology service; entertainment service; pharmaceutical industry; bio-technology industry; and any other industry or service specified by Central Government notification). "Information technology software" and "information technology service" are defined with technical descriptions. The provision also treats subsidiary as per Companies Act, 2013 s.2(87), expressly including subsidiaries incorporated outside India.

Interpretation

The Act indicates a legislative intent to subject two specific types of GDR-related incomes received by resident employees in specified industries to specified, concessional or specialised tax rates (10% for dividends and 12.5% for LTCG), while preserving the regular taxation regime for the remainder of the taxpayer's income. The provision further isolates those GDR incomes for bespoke treatment by directing deductions and computation mechanics in subsection (2). The text suggests the approach of segregating certain income streams and taxing them at fixed rates rather than allowing them to be blended into progressive slab rates for the whole income.

Exceptions/Provisos

Key carve-outs and computational rules appearing in the text:

  • Subsection (2)(a): If gross total income consists only of dividends in respect of the GDRs (Table Sl. No. 1), no deduction shall be allowed to the individual under any other provision of the Act.
  • Subsection (2)(b): If gross total income includes any of the GDR incomes, the GDR income shall be excluded from gross total income for the purpose of computing deductions - i.e., deductions are computed as if gross total income were reduced by such GDR income.
  • Subsection (3): Section 72(6) shall not apply for computation of LTCG arising from transfer of the GDRs referred to in the table (i.e., rollover/aggregation rule in s.72(6) is inapplicable to these transfers).

Illustrations

  • Example 1: A resident employee receives only dividend income of INR X from GDRs purchased in foreign currency under a notified ESOS. Under the provision, tax on that income is 10% and no other deductions under the Act are permitted. (All numeric amounts illustrative; No numeric examples are provided in the statutory text.)
  • Example 2: A resident employee has salary and also realises LTCG of INR Y on transfer of qualifying GDRs. LTCG taxed at 12.5%; the LTCG amount is excluded from gross total income for purposes of computing deductions - deductions are applied against the reduced gross total income (i.e., gross total income minus the GDR incomes). The remaining income is taxed at rates in force.

Note: The text does not provide worked numerical examples. Not stated in the document.

Interplay

The provision expressly disapplies section 72(6) for computation of LTCG on the specified GDR transfers. It also cross-refers to Companies Act, 2013 s.2(87) for the definition of subsidiary. Any interaction with other sections, notifications or rules beyond those explicitly mentioned: Not stated in the document. The provision contemplates additional specification by the Central Government via notification for the ESOS eligible and for enumerating other industries/services (clause (f) in definitions).

Differences between the Two Texts and Practical Impact

Comparison identifies only limited textual divergences between the Section 193 of the Income-tax Act, 2025 (Document 1) and the Clause 193 of the Income Tax Bill, 2025 (Old Version) (Document 2). These differences and their practical impacts are summarised below.

  • Framing of subsection (1) tax computation: - Bill Old Version (Doc 2): states "the income-tax payable shall be the aggregate of income-tax specified in the column C thereof." - Act (Doc 1): states "the income-tax payable 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."
    • Practical impact: The Act text expressly states that column C is a rate applied to the corresponding income (clarifies computational method). The Bill's wording could have been read as specifying absolute amounts; the Act removes ambiguity by explicitly making column C a rate. This clarification affects tax computation practice and removes potential interpretive disputes about method of calculation.
  • Table heading wording for item 3: - Bill: column C reads "Income-tax chargeable on such income." - Act: column C reads "Rates in force."
    • Practical impact: The Act's wording clarifies that for the residual taxable income (total income reduced by GDR income), existing tax rates (i.e., the rates otherwise in force) apply. The Bill language could be read as repeating a computation result rather than pointing to applicable rates. The Act aligns the table to conventional statutory drafting where special rates are set and remaining income taxed at prevailing rates.
  • Punctuation and enumeration of Table items in definitions: - Bill separates clauses in definition (4)(a)(i)-(iii) with slightly different punctuation and includes a trailing "and" before clause (f). - Act uses semicolons, and clause (f) follows without trailing "and."
    • Practical impact: These are drafting/presentation differences with no substantive change to meaning.
  • Scope language in opening of subsection (1): - Bill: lists "an individual, who is a resident and an employee of an Indian company engaged in specified knowledge based industry or service, or an employee of its subsidiary engaged in specified knowledge based industry or service." - Act: same content but formatted with parenthetical "(hereafter in this section referred to as the resident employee)."
    • Practical impact: substantively identical; Act formalises the short-form label "resident employee" for later cross-reference in the section.
  • Miscellaneous editorial differences: Minor differences such as insertion of "Income" in the Act table heading and more explicit phrasing in Act sub-section (1) (described above).
    • Practical impact: primarily clarity and removal of ambiguity in computation; no substantive extension or restriction of scope evident from the texts provided.

Practical Implications

  • Compliance and risk areas: Employers and resident employees must identify whether GDRs were "issued as per such Employees' Stock Option Scheme as the Central Government may, by notification, specify" and whether the GDRs were purchased in foreign currency. Tax withholding and reporting must reflect the special rates (10% for dividends, 12.5% for LTCG). Failure to segregate these incomes for computation of deductions as mandated could result in under- or over-claiming of deductions and assessments.
  • Record-keeping/evidence: The text implies the need to maintain documentation proving (a) GDRs were acquired under the relevant ESOS and purchased in foreign currency; (b) GDRs are of an Indian issuing company and listed on a recognised Indian stock exchange (where applicable) or meet other listing criteria in clause (4)(a); (c) employment status and industry classification of the employer/subsidiary. The statute does not prescribe specific forms or timelines. Not stated in the document.

Key Takeaways

  • The Act prescribes special tax rates for GDR-related dividend income (10%) and long-term capital gains (12.5%) for resident employees of specified knowledge-based companies or their subsidiaries.
  • GDR incomes are segregated from gross total income for the purpose of deduction computation; where gross total income consists only of GDR dividends, no deductions are allowed.
  • Section 72(6) is explicitly not applicable to LTCG on the specified GDRs.
  • Definitions tightly frame "Global Depository Receipts" and "specified knowledge based industry or service," with a power for the Central Government to notify further industries/services and ESOS schemes.
  • Main differences between the Bill Old Version and the Act are drafting clarifications concerning the computation method (Act clarifies column C is a rate) and the wording for residual income taxation ("Rates in force"), which reduce ambiguity but do not change substantive scope.

Full Text:

Section 193 Tax on income from Global Depository Receipts purchased in foreign currency or capital gains arising from their transfer.

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Acts Income Tax