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Circulars Central Excise
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Inspection of prosecution work: ensure compliance with prosecution guidelines and address pendency and non-compliance in tax enforcement.
Inspection of prosecution work requires the Director General, Directorate of Performance Management and Chief Commissioners to inspect Commissionerates to verify scrupulous compliance with the Circular's guidelines for launching prosecution. Inspections must examine reasons for pendency and non-compliance in prosecution cases and ensure recording of statistical data during field visits to support oversight of prosecution performance.
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Compounding of offences for evasion under central excise and service tax allows the Principal Chief/Chief Commissioner to compound offences on payment of the compounding amount; Section 9A(2) of the Central Excise Act as applied to service tax via section 83 of the Finance Act authorises this, and circulars require that persons against whom prosecution is initiated or contemplated be informed in writing of the offer to compound.
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Prosecution guidelines: sanctions granted after the circular govern cases regardless of offence date, with sanctioned cases reviewed.
Prosecution guidelines apply to all cases where sanction for prosecution is accorded after the circular's issue date, and such cases must be prosecuted according to the circular regardless of the offence date. Sanctioning authorities must review cases in which prosecution has been sanctioned but no complaint filed, reassessing them against the circular's provisions before any complaint is presented.
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Withdrawal of prosecution permitted after final exoneration in parallel quasi judicial proceedings; formal application required to seek withdrawal.
Withdrawal of prosecution is permitted where identical allegations led to the noticee's exoneration in quasi judicial proceedings and that order is final; the senior tax or investigative leadership shall direct the commissionerate to file an application through the public prosecutor requesting judicial permission to withdraw the complaint in accordance with law and prosecution guidelines.
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Publication of convicted persons' names may be sought by the department through courts under central excise and service tax law.
Power exists under the Central Excise statutory framework, as applied to service tax by the Finance Act, to publish the name and place of business of persons convicted under the relevant enactments; courts have exercised this power sparingly, and the department is directed to request courts to invoke this publication power in deserving cases for all convicted persons.
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Prosecution Sanction: mens rea and evidentiary sufficiency determine whether tax evasion prosecution proceeds.
Prosecution proposals for service tax or excise evasion must be examined and forwarded by the adjudicating authority to the sanctioning Principal Chief/Chief Commissioner or Principal/Director General; prosecution requires evidence of mens rea and should not be launched in purely technical or interpretation disputes. Criminal standards (beyond reasonable doubt) must be weighed separately from adjudication findings; prosecution may be initiated before adjudication in serious cases. Investigation reports must be prepared within one month and sanction obtained prior to filing; authorised officers must secure exhibits and coordinate with public prosecutors, with reporting obligations for delays and monthly updates to the sanctioning authority.
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Sanction for prosecution: designated senior authorities must authorize and formalize prosecution before filing criminal complaints.
Sanction for prosecution is required before initiating criminal complaints in service tax and central excise matters. The Principal Chief/Chief Commissioner must sanction routine cases, while the Principal Director General/Director General, CEI must sanction cases investigated by the Directorate General of Central Excise Intelligence. The sanctioning authority issues a written order and forwards it to the Commissionerate for expeditious filing of the complaint.
Circulars Central Excise
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Habitual evasion: prosecution permitted where repeated confirmed demands and substantial cumulative tax evasion or credit misuse.
Prosecution may be initiated against a company or assessee classified as a habitual evader where multiple confirmed demands (at first appellate level or above) for Central Excise duty or Service Tax, or findings of Cenvat credit misuse arising from fraud or suppression, occur within a prior period and the cumulative duty or tax evaded or credit misused meets a substantial monetary threshold; the Offence Register (335J) may be used to identify such assessees.
Circulars Central Excise
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Prosecution threshold: prosecution requires evasion exceeding the prescribed monetary limit before proceeding for excise or service tax offences.
Prosecution for evasion of Central Excise duty or Service Tax, or misuse of Cenvat credit in relation to offences specified under sub section (1) of Section 9 of the Central Excise Act, 1944 or sub section (1) of Section 89 of the Finance Act, 1994 should normally not be launched unless the evasion meets or exceeds the prescribed monetary threshold set out in the departmental guideline.
Circulars Central Excise
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Corporate criminal liability: officers and partners can be prosecuted for company service tax or excise evasion.
Persons in charge of and responsible for a company's business are prosecutable alongside the company for service tax or central excise evasion; where an offence by a company is shown to involve the consent, connivance or neglect of a director, manager, secretary or other officer, that individual is deemed guilty. The statutory definition of company includes firms and associations and treats a partner as a director, extending corporate liability principles to service tax prosecutions.
Circulars Service Tax
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Swachh Bharat Cess applicability: applies to all taxable services except services fully exempt or not leviable to service tax.
Swachh Bharat Cess applies to all taxable services except those that are fully exempt under a statutory notification or are otherwise not leviable to service tax; the cess was imposed by government authority to cover the taxable service base while preserving existing exemptions and non leviability rules.
Circulars Service Tax
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Cenvat credit reversal does not require separate reversal of Swachh Bharat Cess under the applicable rule per FAQ.
The circular states that Swachh Bharat Cess is not integrated into the Cenvat credit chain; the reversal under Rule 6 requires payment based on the value of exempted services, and therefore a separate reversal of Swachh Bharat Cess is not required when reversing credit under Rule 6 of the Cenvat Credit Rules.
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Point of taxation determines Swachh Bharat Cess liability; payment date triggers reverse charge cess on taxable service.
Point of taxation governs SBC liability for reverse-charge services: the date of payment is the point of taxation and SBC is payable on the value of the taxable service at the prescribed rate when consideration is paid to the service provider.
Circulars Service Tax
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Swachh Bharat Cess option for services under specified service-tax rule; SBC computed by prescribed formula and fixed for financial year.
Persons liable to pay service tax under the sub rules of rule 6 may elect to discharge Swachh Bharat Cess by applying a prescribed computation to their Service Tax liability; once exercised the election must be applied uniformly to such services and cannot be changed during the financial year.
Circulars Service Tax
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Swachh Bharat Cess on restaurant services is calculated on the value determined under Service Tax valuation rules, creating a combined levy.
Swachh Bharat Cess on restaurant services is payable on the taxable value determined under the Service Tax (Determination of Value) Rules, 2006; for restaurants, eating joints or messes with any air-conditioning or central heating, the cess and service tax are each applied to the portion of the total charge treated as taxable under those rules, and the combined levy is the sum of the service tax rate and the cess rate applied to that taxable portion.
Circulars Service Tax
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Service tax calculation for services under Rule 2A/2B/2C: apply combined service tax and SBC to the rule determined value.
Service tax and Swachh Bharat Cess on services governed by Rule 2A, 2B or 2C are computed by multiplying the combined service tax plus SBC rate by the value determined under the relevant rule. For works contract services, applying the combined rate to the rule specified taxable fraction of the contract value produces the operative tax liability; the same approach applies to restaurant and outdoor catering services.
Circulars Service Tax
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Point of taxation for Swachh Bharat Cess: levy applies where service, invoice and payment occur on or after commencement date.
Because SBC is a new levy on taxable services not in the Negative List or wholly exempt, the Point of Taxation Rules determine liability. SBC does not arise where payment and invoice are issued before the levy's commencement or where payment precedes commencement but invoice is issued within the short prescribed period. SBC is chargeable where service provision, invoice issuance and payment occur on or after the commencement date; it also applies if service is provided on or after commencement but payment was received earlier and invoice is not issued within the short post-commencement period.
Circulars Service Tax
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Cenvat credit of Swachh Bharat Cess disallowed; SBC not in Cenvat credit chain and not payable using credits.
Cenvat credit for the Swachh Bharat Cess (SBC) is not available because SBC is not integrated into the Cenvat credit chain; consequently SBC cannot be claimed as input credit nor paid using credits of any other duty or tax.
Circulars Service Tax
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Swachh Bharat Cess calculation: SBC applies same abatement percentage as service tax, on combined taxable rate.
Swachh Bharat Cess is to be levied on the same abatement percentage that applies to service tax; the notification prescribing abatement for service tax applies equally to SBC, so the combined rate (service tax plus SBC) is applied to the abated value to determine the effective levy.

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Comparison of Section 209 "Tax on income from bonds or 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)

5 September, 2025

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Section 209 Tax on income from bonds or Global Depository Receipts purchased in foreign currency or capital gains arising from their transfer.

Income-tax Act, 2025

At a Glance

These documents reproduce Clause 209 of the Income Tax Bill, 2025 (Old Version) and Section 209 of the Income-tax Act, 2025 as enacted. Both provisions impose special tax treatment for non-residents on income from certain bonds and Global Depository Receipts (GDRs) purchased in foreign currency and on capital gains arising on their transfer. The changes between the Bill and the enacted Section are primarily textual, reference-based and procedural in nature; they affect computation wording, cross-references to other sections, and a minor definitional cross-reference. Affected parties: non-resident investors, financial intermediaries (approved intermediaries), Indian issuing companies and tax administration. Effective date or enactment date: Not stated in the document.

Background & Scope

Statutory hook: Clause/Section 209, appearing in the Income Tax Bill, 2025 (old version) and in the Income-tax Act, 2025 respectively. The provision is located within the special provisions relating to non-residents and foreign companies. The text covers income from (i) interest on specified bonds issued by Indian companies or public sector companies and purchased in foreign currency; (ii) dividends on Global Depository Receipts acquired in foreign currency through an approved intermediary; and (iii) long-term capital gains on transfer of those bonds or GDRs. The enacted section also contains procedural provisions governing deductions, returns, and certain transitional/amalgamation situations. Definitions provided in the enacted section include 'approved intermediary' (as per a Central Government-notified scheme) and a cross-reference defining 'Global Depository Receipts' (section 193(4)(a) in the Act). The Bill version contains similar material but uses a different cross-reference for GDRs (section 190(4)(a)).

Statutory Provision Mode

Text & Scope

The provision applies to an assessee who is a non-resident and whose total income includes any of the incomes specified in the statutory Table. The Table enumerates four entries:

  • Interest on (a) bonds of an Indian company issued under a Central Government notified scheme, or (b) bonds of a public sector company sold by the Government, when purchased in foreign currency - taxed at 10%.
  • Dividends on Global Depository Receipts - where the GDRs are issued/re-issued under notified schemes and purchased in foreign currency through an approved intermediary - taxed at 10%.
  • Long-term capital gains on transfer of the bonds or GDRs referred to above - taxed at 12.5%.
  • The remainder: total income as reduced by the incomes in items 1-3 - in the enacted section described as "Rates in force"; in the Bill as "Income-tax chargeable on such income."

Interpretation

The enacted text frames the tax liability of a non-resident as "the aggregate of income-tax computed at the rate specified in column C applied on the corresponding income specified in column B." This language emphasises a rate-applied computation for each head listed. The Bill phrasing (aggregate of the amounts mentioned in column C) is functionally similar but less explicit about the computation methodology. The enacted provision also expressly excludes application of section 72(6) for computation of long-term capital gains on these specified assets.

Exceptions/Provisos

Several limiting or procedural provisions are present:

  • Where a non-resident's gross total income consists only of interest and/or dividends as specified (items 1 and 2), no deductions are allowed under enumerated provisions (enacted section cites sections 28 to 58, 60 and 61; Bill cited sections 26 to 61).
  • Where the gross total income includes any of items 1-3, the gross total income is to be reduced by such income and deductions under Chapter VIII are to be allowed as if the reduced gross total income were the gross total income of the assessee.
  • A non-resident need not furnish a return u/s 263(1) if total income in the year consisted only of the interest/dividend incomes in items 1-2 and tax was deducted at source under Chapter XIX-B.
  • Transitional/amalgamation rule: where GDRs or bonds are acquired by an assessee in an amalgamated or resulting company by virtue of holding such instruments in the amalgamating or demerged company, the same provisions apply to such GDRs or bonds.

Illustrations

  • Example 1: A non-resident holds interest-bearing bonds of an Indian company purchased in foreign currency and receives interest of X in the year. The interest is taxed at 10% under item 1. Not stated in the document whether grossing up, surcharges or cesses apply beyond the stated rate.
  • Example 2: A non-resident sells long-term GDRs (acquired in foreign currency through an approved intermediary) and realises capital gain Y. The long-term capital gain is taxed at 12.5% as per item 3. Not stated in the document whether indexation or specific computation method for capital gain is modified beyond the exclusion of section 72(6).

Interplay

The enacted section cross-references other statutory provisions: Chapters and sections governing deductions (Sections 28-58, 60, 61), Chapter VIII deductions, section 72(6) (specifically excluded), the return filing provision referenced (section 263(1) in the texts), Chapter XIX-B (TDS provisions) and the definition of GDRs (section 193(4)(a) in the Act text; Bill referenced section 190(4)(a)). The documents do not reproduce the content of those cross-referenced provisions; therefore detailed interaction mechanics are Not stated in the document.

Differences between the Clause 209 of the Income Tax Bill, 2025 (Old Version) and Section 209 of the Income-tax Act, 2025

Topic Bill (Clause 209 Old Version) Enacted Section 209 Practical impact
Computation wording "aggregate of the amounts mentioned in column C thereof." "aggregate of income-tax computed at the rate specified in the column C applied on the corresponding income specified in column B." clearer computational method in the enacted text ensuring rates are applied to corresponding income heads rather than potentially interpreted as flat sums.
Residual income wording (Table item 4) "Income-tax chargeable on such income." "Rates in force." enacted text signals application of prevailing tax rates to the residual income; the Bill phrase might have invited alternative interpretations of chargeability. Exact fiscal consequences Not stated in the document.
Cross-references to deduction sections Excludes deductions u/ss 26 to 61 (and certain sub-clauses) and under Chapter VIII. Excludes deductions u/ss 28 to 58, 60 and 61 (and certain sub-clauses) and under Chapter VIII. the enacted text alters the catalogue of excluded deduction sections; which specific deductions are affected is Not stated in the document.
Definition cross-reference for "Global Depository Receipts" Cross-refers to section 190(4)(a). Cross-refers to section 193(4)(a). depends on the substantive definitions in those sections-Not stated in the document.
Minor drafting/typo corrections Contains editorial notes/corrections in the Bill (e.g., "as per with" corrected to "as per"). Polished enacted language ("as may be notified by the Central Government"). reduces ambiguity; no substantive policy change apparent from document.

Practical Implications

  • Compliance and risk areas: Non-resident taxpayers receiving the enumerated incomes must ensure correct application of the specified rates (10% for interest/dividend; 12.5% for long-term capital gains) and must verify whether their gross total income consists solely of those heads to determine deductibility limits and return filing obligations. The enacted text's explicit computation language reduces ambiguity when computing aggregate tax on the heads in the Table.
  • Record-keeping/evidence points: The provision emphasises acquisition "in foreign currency" and purchase "through an approved intermediary" for GDRs; therefore investors and intermediaries should retain evidence of currency of purchase and intermediary approval status under a Central Government-notified scheme. Not stated in the document are the particulars of the scheme or the certification/documentation required by the approved intermediary; those details are Not stated in the document.

Key Takeaways

  • Both texts impose special fixed rates for non-residents on interest (10%), dividends on GDRs (10%) and long-term capital gains on transfer of such assets (12.5%).
  • The enacted section clarifies computation language - "income-tax computed at the rate specified" - whereas the Bill used a less explicit phrase "aggregate of the amounts mentioned". Practical effect: clearer computational instruction in the enacted text.
  • Cross-reference differences: enacted section cites deduction sections as 28-58, 60 and 61; the Bill cited 26-61. This narrows the list of excluded deductions in the enacted text relative to the Bill; practical impact depends on which specific provisions were moved/excluded (details Not stated in the document).
  • The enacted section uses a different cross-reference for the statutory definition of "Global Depository Receipts" (section 193(4)(a)) versus the Bill's section 190(4)(a). The practical significance depends on the definitions in those sections (Not stated in the document).
  • The enacted provision replaces the Bill's phrase "Income-tax chargeable on such income" for the residual income with "Rates in force", which suggests that the balance of income will be taxed under prevailing rates rather than by reference to a specific computation language in the Table. The exact fiscal effect is Not stated in the document.
  • Procedural provisions on returns and applicability on amalgamation are retained in substance; they require documentary corroboration for threshold compliance (Not stated in the document as to the precise documentary standards).

Full Text:

Section 209 Tax on income from bonds or Global Depository Receipts purchased in foreign currency or capital gains arising from their transfer.

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Acts Income Tax