Sections 208 and 209 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 208 taxes an overseas financial organisation (an "Offshore Fund") at 10% on income from units purchased in foreign currency and 12.5% on long-term capital gains from their transfer. Section 209 gives a non-resident the same two rates on interest on specified bonds, dividends on specified Global Depository Receipts and capital gains from their transfer. Both sections bar expense deductions and limit Chapter VIII. This article reads them as per the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026.
An Offshore Fund pays 10% on income from units bought in foreign currency and 12.5% on long-term capital gains from their transfer, with the rest of total income at rates in force (section 208). A non-resident pays 10% on interest on specified bonds and on dividends on specified Global Depository Receipts, and 12.5% on long-term capital gains from their transfer (section 209). A non-resident whose total income is only the bond interest and GDR dividend, with tax deducted at source, need not furnish a return (section 209(4)).
Scope
Both sections are in Chapter XIII, Part E. The Act came into force on the 1st April, 2026 (section 1(3)), save as otherwise provided. The rates are those printed in the sections; later amendments, rules and notifications should be checked.
The preceding section is section 207, and the next is section 210 on foreign institutional investors. The definition of Global Depository Receipts is in section 193(4)(a); see our article on sections 190 to 193. For the Chapter overview, see Chapter XIII of the Income-tax Act, 2025. If you invest from outside India, our NRI tax filing team can help.
Section 208: Offshore Fund and units
Section 208(1): the Table
The income-tax payable on the total income of an overseas financial organisation (the "Offshore Fund") which includes income in column B is the aggregate of tax at the rate in column C on the corresponding income.
| Serial number | Income | Rate of income-tax payable |
|---|---|---|
| 1 | Income received in respect of units purchased in foreign currency | 10% |
| 2 | Long-term capital gains arising from the transfer of units purchased in foreign currency | 12.5% |
| 3 | Total income as reduced by income referred against serial numbers 1 and 2 | Rates in force |
Section 208(2): deductions
Where the gross total income of the Offshore Fund:
- (a) consists only of income from units or income by way of long-term capital gains arising from the transfer of units, or both, no deduction is allowed to the assessee under sections 28 to 58, 60 and 61 or section 93(1)(a) or (e) or under Chapter VIII;
- (b) includes any income referred to in clause (a), (i) the gross total income is reduced by that income, and (ii) the deduction under Chapter VIII is allowed as if the gross total income so reduced were the gross total income of the assessee.
Section 208(3): definitions
| Clause | Term | Meaning |
|---|---|---|
| (a) | "overseas financial organisation" | any fund, institution, association or body, whether incorporated or not, established under the laws of a country outside India, (i) which has entered into an arrangement for investment in India with any public sector bank or public financial institution or a mutual fund specified in Schedule VII (Table: serial number 20 or 21); and (ii) such arrangement is approved by the Securities and Exchange Board of India, established under the Securities and Exchange Board of India Act, 1992 (15 of 1992), for this purpose |
| (b) | "public financial institution" | the same meaning as in section 2(72) of the Companies Act, 2013 (18 of 2013) |
| (c) | "unit" | a unit of (i) a mutual fund specified in Schedule VII (Table: serial number 20 or 21); or (ii) the Unit Trust of India |
The Securities and Exchange Board of India Act, 1992 and the Companies Act, 2013 should be checked by the reader. The mutual funds specified in Schedule VII are not set out in this article.
Section 209: bonds and Global Depository Receipts
Section 209(1): the Table
The income-tax payable on the total income of an assessee who is a non-resident, which includes income in column B, is the aggregate of tax at the rate in column C on the corresponding income.
| Serial number | Income | Rate of income-tax payable |
|---|---|---|
| 1 | From interest on (a) bonds of an Indian company issued as per such scheme as may be notified by the Central Government; or (b) bonds of a public sector company sold by the Government, and purchased in foreign currency | 10% |
| 2 | From dividends on Global Depository Receipts (a) issued as per such scheme as may be notified by the Central Government against the initial issue of shares of an Indian company and purchased in foreign currency through an approved intermediary; or (b) issued against the shares of a public sector company sold by the Government and purchased by him in foreign currency through an approved intermediary; or (c) issued or re-issued as per a scheme as may be notified by the Central Government, against the existing shares of an Indian company purchased in foreign currency through an approved intermediary | 10% |
| 3 | Long-term capital gains arising from the transfer of bonds referred to against serial number 1 or Global Depository Receipts referred to against serial number 2 | 12.5% |
| 4 | Total income as reduced by income referred to against serial numbers 1 to 3 | Rates in force |
The Table breaks across a page, and its column heads are repeated after the break; the entries in serial number 2, clauses (b) and (c), continue from the earlier page. The schemes are for notification; what has been notified is not in the text consulted.
Section 209(2) and (3): deductions and section 72(6)
- Where the gross total income of the non-resident (a) consists only of interest or dividends on the bonds in serial number 1 or the GDRs in serial number 2, no deduction is allowed under sections 28 to 58, 60 and 61 or section 93(1)(a) or (e) or under Chapter VIII; or (b) includes income in serial numbers 1 to 3, the gross total income is reduced by that income and the Chapter VIII deduction is allowed as if the reduced amount were the gross total income.
- Section 72(6) does not apply to the computation of long-term capital gains arising from the transfer of a long-term capital asset being the bonds or GDRs in serial number 3. See our post on section 72.
Section 209(4): when no return is needed
It is not necessary for a non-resident to furnish a return of income under section 263(1) if (a) his total income during the tax year consisted only of income in serial number 1 and serial number 2 of the Table, and (b) the tax deductible at source under Chapter XIX-B has been deducted from that income. The sub-section covers the interest and dividend rows and does not mention serial number 3, so capital gains do not fall within this relief.
Section 209(5): amalgamation or demerger
Where the assessee acquired GDRs or bonds in an amalgamated or resulting company by virtue of his holding in the amalgamating or demerged company, sub-section (1) applies to those GDRs or bonds.
Section 209(6): definitions
"Approved intermediary" means an intermediary approved as per a scheme as may be notified by the Central Government. "Global Depository Receipts" has the meaning assigned in section 193(4)(a).
Comparing the two sections
| Point | Section 208 | Section 209 |
|---|---|---|
| Who | an Offshore Fund (overseas financial organisation) | a non-resident |
| Subject | units purchased in foreign currency | bonds and GDRs purchased in foreign currency |
| Income rate | 10% | 10% |
| Long-term capital gains | 12.5% | 12.5% |
| Balance of total income | rates in force | rates in force |
| Return exemption | not stated | yes, for serial numbers 1 and 2 with tax deducted |
A worked example
Names and amounts are invented; the rates are as printed.
Section 208. Atlas Horizon Fund, an overseas financial organisation with an approved arrangement for investment in India, receives Rs. 5,00,000 as income on units purchased in foreign currency and realises long-term capital gains of Rs. 20,00,000 on transferring some of them.
- Rs. 5,00,000 x 10% = Rs. 50,000.
- Rs. 20,00,000 x 12.5% = Rs. 2,50,000.
- Tax = Rs. 3,00,000, with no deduction under sections 28 to 58, 60 and 61, section 93(1)(a) or (e), or Chapter VIII, if the gross total income is only these two items.
Section 209. Pierre Dubois, a non-resident, receives Rs. 2,00,000 as interest on bonds of an Indian company issued under a notified scheme and purchased in foreign currency. Tax at 10% is Rs. 20,000. If this is his only income and tax has been deducted at source, he need not furnish a return under section 263(1).
Need help with offshore fund or bond income?
Whether a scheme or arrangement qualifies, whether a return is needed and how the balance of income is taxed are fact-specific. Our NRI tax filing service can check the approvals and the deduction certificates for you.
Key takeaways
- An Offshore Fund pays 10% on income from units bought in foreign currency and 12.5% on long-term capital gains from their transfer.
- A non-resident pays 10% on specified bond interest and GDR dividends and 12.5% on long-term capital gains from them.
- The balance of total income is taxed at rates in force.
- Expenditure deductions are barred, and Chapter VIII deductions are available only on the reduced balance.
- Section 209(4) excuses a return for the interest and dividend income where tax has been deducted at source.
Read next
- Section 207: tax on dividends, royalty and technical fees of foreign companies
- Section 210: foreign institutional investors
- Sections 190 to 193: special-case rates including GDRs
- Section 175: transactions in securities
Disclaimer: Based on the Income-tax Act, 2025 (30 of 2025) as amended by the Finance Act, 2026, as consulted on 2 October 2026. It explains the words of the Act only; the Income-tax Rules, 2026, notifications, circulars, later amendments and the way the tax authorities and courts apply these provisions should be checked. This article is general information, not legal advice; check the official text before acting.