Section 209 of the Income-tax Act, 2025 — Tax on Foreign-Currency Bonds and GDRs of Non-Residents (Earlier Section 115AC)

In plain language

Important clarification first: many readers land on "Section 209" expecting crypto tax. Section 209 of the Income-tax Act, 2025 does not deal with virtual digital assets (VDAs). Crypto, NFTs and other VDAs are taxed at a flat 30% under Section 194 of the 2025 Act (the successor to Section 115BBH of the 1961 Act). Section 209 is a different special-rate provision: it taxes a non-resident's income from bonds and Global Depository Receipts (GDRs) purchased in foreign currency — the successor to the well-known Section 115AC of the Income-tax Act, 1961.

What Section 209 actually covers

Section 209 gives a concessional, flat-rate tax regime to non-residents who invest foreign currency into specified Indian instruments. It applies to three streams of income:

• Interest on bonds of an Indian company issued under a Central Government notification (for example, foreign currency convertible bonds — FCCBs) or bonds of a public sector company sold by the Government, where the bonds were purchased in foreign currency — taxed at 10%.
• Dividends on GDRs issued against shares of an Indian company and purchased in foreign currency through an approved intermediary — taxed at 10%.
• Long-term capital gains on the transfer of such bonds or GDRs — taxed at 12.5% (this reflects the rate rationalisation first made by the Finance (No. 2) Act, 2024, which moved most LTCG to 12.5%, and now carried into the 2025 Act).

Any other income of the non-resident is taxed at the normal rates applicable to them; Section 209 ring-fences only these three streams. Surcharge and the 4% health and education cess apply on top of the flat rates.

Who it applies to

• Non-residents only — NRIs, foreign companies and other non-resident investors. Residents holding GDRs as employees of Indian companies are covered by a separate provision (Section 193 of the 2025 Act, the successor to Section 115ACA).
• The bonds/GDRs must have been bought with foreign currency; GDRs must come through a government-notified approved intermediary under the depository receipts schemes (the 1993 FCCB/GDR scheme framework and its successors).

Key conditions and restrictions

• No expense deductions: where the non-resident's income consists only of such interest or dividends, no deduction is allowed under the income-computation provisions (Sections 26 to 61 of the 2025 Act) or the chapter deductions — the 10% applies on gross income.
• No indexation: the cost-inflation indexation and related adjustments available under the normal capital gains computation rules do not apply to the 12.5% LTCG under this section.
• No loss shelter for these gains: the concessional LTCG is computed and taxed on its own terms; the usual loss carry-forward mechanics do not operate against it in the normal way.
• Return-filing relief: if the non-resident's total income consists only of this interest/dividend and TDS has been correctly deducted, they are not required to file an Indian income-tax return for that year.
• Corporate restructuring protection: GDRs or bonds received under a scheme of amalgamation or demerger continue to enjoy the Section 209 regime in the hands of the non-resident.

How it interacts with related provisions

• Section 208 (old 115AB) gives a parallel regime for offshore funds investing in units purchased in foreign currency.
• Section 210 (old 115AD) is the regime for Foreign Institutional Investors/specified funds — an FII holding Indian securities generally falls there, not under Section 209.
• DTAA benefit: as with the old Section 115AC, a non-resident can rely on a more beneficial tax treaty rate if one applies, subject to holding a valid Tax Residency Certificate.
• Transfers of GDRs between two non-residents outside India have historically enjoyed relief under the "transactions not regarded as transfer" rules; the 2025 Act carries forward this scheme of exempt transfers, so gains typically crystallise on redemption/sale into the Indian market.

Practical implications for taxpayers

• For an NRI, the regime is simple and final: 10% TDS on interest/dividend usually settles the liability, often with no ITR to file.
• The trade-off for the low flat rate is no deductions and no indexation — you cannot reduce the taxable amount with expenses, Chapter deductions or inflation adjustment.
• Keep documentary proof of foreign-currency purchase and the approved intermediary route for GDRs; these are the gateway conditions to the concession.
• The section applies from tax year 2026-27 (the 2025 Act is effective 1 April 2026), replacing Section 115AC without changing its substance.