Amended and updated notes on section 115ACA of Income Tax Act 1961 as amended by the Finance Act 2022 and Income-tax Rules, 1962. Detail discussion on provisions and rules related to tax on income from Global Depository Receipts purchased in foreign currency or capital gains arising from their transfer.
Chapter XII (Sections 110 to 115BBG) of the Income Tax Act 1961 deals with the provisions related to determination of tax in certain special cases. Section 115ACA of IT Act 1961-2023 provides for tax on income from Global Depository Receipts purchased in foreign currency or capital gains arising from their transfer.
Recently, we have discussed in detail section 115AC (Tax on income from bonds or Global Depository Receipts purchased in foreign currency or capital gains arising from their transfer) of IT Act 1961. Today, we learn the provisions of section 115ACA of Income-tax Act 1961. The amended provision of section 115ACA is effective for financial year 2022-23 relevant to the assessment year 2023-24.
In this article, you will learn detail of the provisions of section 115ACA of the Income Tax Act, 1961 Bare Act read with the Income-tax Rules, 1962, regulations, notifications, circulars, orders and Press Release by CBDT, Income Tax Department and the Ministry of Law and Justice, Government of India.
Section-115ACA: Tax on income from Global Depository Receipts purchased in foreign currency or capital gains arising from their transfer
Section 115ACA(1) of Income Tax Act
Where the total income of an assessee, being 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 (hereafter in this section referred to as the resident employee), includes—
(a) income by way of dividends, other than dividends referred to in section 115-O, on Global Depository Receipts of an Indian company engaged in specified knowledge based industry or service, issued in accordance with such Employees’ Stock Option Scheme as the Central Government may, by notification in the Official Gazette, specify in this behalf and purchased by him in foreign currency; or [Strikethrough words shall be omitted w.e.f. 01.04.2021 by the Finance Act 2020]
(b) income by way of long-term capital gains arising from the transfer of Global Depository Receipts referred to in clause (a),
the income-tax payable shall be the aggregate of—
- (i) the amount of income-tax calculated on the income by way of dividends,
other than dividends referred to in section 115-O, in respect of Global Depository Receipts referred to in clause (a), if any, included in the total income, at the rate of ten per cent; [Strikethrough words shall be omitted w.e.f. 01.04.2021 by the Finance Act 2020] - (ii) the amount of income-tax calculated on the income by way of long-term capital gains referred to in clause (b), if any, at the rate of ten per cent; and
- (iii) the amount of income-tax with which the resident employee would have been chargeable had his total income been reduced by the amount of income referred to in clauses (a) and (b).
Explanation: For the purposes of this sub-section,—
(a) “specified knowledge based industry or service” means—
- (i) information technology software;
- (ii) information technology service;
- (iii) entertainment service;
- (iv) pharmaceutical industry;
- (v) bio-technology industry; and
- (vi) any other industry or service, as may be specified by the Central Government, by notification in the Official Gazette;
(b) “subsidiary” shall have the meaning assigned to it in section 4 of the Companies Act, 1956 (1 of 1956) and includes subsidiary incorporated outside India.
Section 115ACA(2) of Income Tax Act
Where the gross total income of the resident employee—
- (a) consists only of income by way of dividends
other than dividends referred to in section 115-O, in respect of Global Depository Receipts referred to in clause (a) of sub-section (1), no deduction shall be allowed to him under any other provision of this Act; [Strikethrough words shall be omitted w.e.f. 01.04.2021 by the Finance Act 2020] - (b) includes any income referred to in clause (a) or clause (b) of sub-section (1), the gross total income shall be reduced by the amount of such income and the deduction under any provision of this Act shall be allowed as if the gross total income as so reduced were the gross total income of the assessee.
Section 115ACA(3) of Income Tax Act
Nothing contained in the first and second provisos to section 48 shall apply for the computation of long-term capital gains arising out of the transfer of long-term capital asset, being Global Depository Receipts referred to in clause (b) of sub-section (1).
Explanation: For the purposes of this section,—
(a) “Global Depository Receipts” means any instrument in the form of a depository receipt or certificate (by whatever name called) created by the Overseas Depository Bank outside India and issued to investors against the issue of,—
- (i) ordinary shares of issuing company, being a company listed on a recognised stock exchange in India; or
- (ii) foreign currency convertible bonds of issuing company;
(b) “information technology service” means any service which results from the use of any information technology software over a system of information technology products for realising value addition;
(c) “information technology software” means any representation of instructions, data, sound or image, including source code and object code, recorded in a machine readable form and capable of being manipulated or providing inter-activity to a user, by means of an automatic data processing machine falling under heading information technology products but does not include non-information technology products;
(d) “Overseas Depository Bank” means a bank authorised by the issuing company to issue Global Depository Receipts against issue of Foreign Currency Convertible Bonds or ordinary shares of the issuing company.