Section 193 of the Income-tax Act, 2025 — Tax on Income from Global Depository Receipts (GDRs) of Resident Employees

In plain language

What Section 193 actually deals with

Important clarification: Despite being sometimes tagged under "transfer pricing," Section 193 of the Income-tax Act, 2025 has nothing to do with transfer pricing. Section 193 is a concessional (special) tax-rate provision that deals with tax on income from Global Depository Receipts (GDRs) purchased in foreign currency by resident employees, or long-term capital gains arising from the transfer of such GDRs. It is the re-numbered successor to Section 115ACA of the Income-tax Act, 1961, carried into the new Act which takes effect from 1 April 2026. (Transfer pricing, by contrast, sits in Chapter X of the 2025 Act, around Sections 161–173.)

What it means in plain English

When an Indian company in a "knowledge-based" industry issues Global Depository Receipts (GDRs) abroad, its own resident employees may be allotted these GDRs under an Employees' Stock Option Scheme (ESOP) approved by the Central Government, and they pay for them in foreign currency. Section 193 gives these employees a flat, concessional rate of tax on two types of income from those GDRs, instead of taxing them at normal slab rates:

• Dividends received on such GDRs are taxed at a flat 10%.
• Long-term capital gains (LTCG) on transfer (sale) of such GDRs are taxed at 12.5% (the rate was raised from 10% to 12.5% by the Finance (No. 2) Act, 2024 for transfers on or after 23 July 2024, to align with Sections 112/112A).

Who it applies to (eligibility conditions)

• Only individuals who are residents of India for the tax year — non-residents are not covered here (they fall under the GDR/bond provision that succeeds old Section 115AC).
• The individual must be an employee of the Indian company that issued the GDRs, or an employee of its subsidiary, and that company must be engaged in a specified knowledge-based industry or service — for example information technology (software/hardware), entertainment, pharmaceuticals, bio-technology, and any other sector notified by the Government.
• The GDRs must be issued under an Employees' Stock Option Scheme notified by the Central Government, and must have been purchased by the employee in foreign currency.

Key conditions, limits and computation rules

• No deductions under Chapter VI-A (like 80C, 80D) are allowed against the GDR dividend income when total income consists only of such dividends; where gross total income includes GDR income, that income is first stripped out, and deductions are computed on the reduced balance.
• No benefit of indexation and no first/second proviso to the capital-gains provision (foreign-currency conversion benefit) applies to these GDR gains — the gain is computed and taxed straight at the flat rate.
• The set-off/carry-forward rule equivalent to old Section 74 (capital-loss set-off, referenced as Section 72(6)-type provisions) is excluded when computing the special LTCG here.
• There is no basic exemption threshold shelter for this special-rate income — the concessional rate applies from the first rupee; the concession is the low flat rate itself, not an exemption limit.

How it interacts with other provisions

Section 193 works alongside the general capital-gains and dividend-taxation machinery but overrides the normal slab rates for the covered income. It is a sibling of the provision that taxes GDRs/bonds bought by non-residents (successor to old 115AC). Surcharge and 4% health-and-education cess still apply on top of the flat rate. If an employee's total income includes both GDR income and other income, only the GDR portion gets the special rate; the rest is taxed normally.

Practical implications

• This is a niche, high-value provision — it typically matters to senior/technical employees of large listed IT, pharma and biotech companies that have issued GDRs on foreign exchanges.
• The employee should keep documentation of the foreign-currency purchase, the ESOP approval, and dividend/sale statements, because the concession hinges on meeting every eligibility condition.
• Report the income under the correct capital-gains/other-sources schedules in the ITR, applying the 10%/12.5% special rates rather than slab rates.