Global Depository Receipts (GDRs) – Taxation

Global Depository Receipt (GDR) is a foreign currency denominated financial instrument issued outside India by a foreign depository to investors, against an underlying Indian security which is deposited with a domestic custodian in India. The underlying security against the issue of GDR may be:

• Ordinary shares of Issuing Company (Listed Company)
• Foreign Currency Convertible Bonds of issuing company.

GDR may be issued by both listed as well as unlisted companies. Further, we will see that the tax benefit available in case of GDRs is only on GDRs issued by listed companies.

Capital Gain on Transfer of GDRs

 GDR is a capital asset. When GDRs of listed company is transferred outside India by a Non Resident to Another Non Resident it is exempt from Capital Gain Tax.

Capital Gain on Conversion of GDRs into Shares and Subsequent transfer of shares.

Conversion of GDRs into shares is treated as transfer under the Income Tax Act, 1961and such transfer is not exempt under section 47 of  Income Tax Act, 1961or any other section.

Sale Consideration for calculation of Capital Gain shall be the Fair Market Value (FMV) as on the date on which REQUEST for redemption is made shall be treated as sale consideration.

Cost of Acquisition of Converted Shares:

For GDRs of listed Companies:

As per Section 49(2ABB), the Cost of Acquisition of shares in case it is converted from GDR shall be the price of the share prevailing on the Recognized Stock Exchange as on the date on which a request for redemption was made.

Date on which a request for redemption was made is the date on which instruction from foreign depositary is received by local custodian.

For GDRs of unlisted Companies:

Cost of Acquisition of these shares shall be the cost at which GDR had been acquired by the investor.

Period of Holding of Shares so converted.

For GDRs of Listed Companies:

Period of holding of the shares so received on conversion shall be from the date on which request for this redemption is made.

For GDRs of unlisted Companies:

Period of holding of the shares so received on conversion shall be from the date on which GDR was acquired.

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