Section 115AC of ITA, 1961 : Section 115Ac: Tax On Income From Bonds Or Global Depository Receipts Purchased In Foreign Currency Or Capital Gains Arising From Their Transfer

Explanation using Example

Let's consider a hypothetical scenario to understand the application of Section 115AC of the Income-tax Act, 1961:

John, a non-resident individual from the UK, has invested in bonds issued by an Indian company, which were specifically notified by the Central Government for foreign investment. He has also purchased Global Depository Receipts (GDRs) of another Indian company through an approved intermediary, using foreign currency.

In the financial year, John received:

• Interest income of INR 50,000 from the bonds.
• Dividend income of INR 30,000 from the GDRs.
• He also sold some of the GDRs, resulting in a long-term capital gain of INR 100,000.

As per Section 115AC:

• John's interest and dividend income will be taxed at a concessional rate of 10%, which means INR 5,000 (10% of INR 50,000) for interest and INR 3,000 (10% of INR 30,000) for dividends.
• His long-term capital gains from the sale of GDRs will also be taxed at 10%, amounting to INR 10,000 (10% of INR 100,000).
• No deductions under sections 28 to 44C or Chapter VIA will be allowed against this income.
• Since John's income consists only of interest, dividends, and capital gains from the specified investments, and tax has been deducted at source on this income, he is not required to file a return of income in India for this year.

This section provides a tax-efficient way for non-residents to invest in Indian securities and simplifies their tax compliance requirements.