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Global Depositary Receipts
American Depositary
Receipts (ADR)
Foreign Currency Convertible
Bonds (FCCB)
 Depository receipts are instruments issued by
international depositories (ODB), and they represent an
interest in the underlying shares held by them in the
issuer company (Indian company). The shares are
usually held by a domestic custodian on behalf of the
depositories and the depositories in turn issue the
depository receipts, which entitle the holder of the
receipts to get the underlying shares on demand.
 The depository receipts themselves, which represent an
interest in the underlying securities, are in turn
securities that are capable of being listed on
international stock exchanges
 They can be converted into ordinary shares of issuing
Conditions to be fulfilled by
issuing domestic company
 FCCB- in foreign currency(Foreign currency bonds)
 Ordinary shares of issuing company should be in
Indian currency
 The issued ordinary shares or bonds should be
delivered to DCB(Domestic custodian bank)
 DCB instructs ODB(Overseas depository Bank) to
issue GDR/ADR certificates to non- resident
investors against the shares in DCB
 GDR may be listed on any international stock
exchange for trading outside India.
 Prior permission from Department of Economic
affairs, Ministry of finance, GOI
 Indian companies are allowed to raise
equity capital in the international market
through the issue of GDR/ADRs/FCCBs.
These are not subject to any ceilings on
investment. An applicant company
seeking Government's approval in this
regard should have a consistent track
record for good performance (financial or
otherwise) for a minimum period of 3
Issue of GDRs/ADRs by IT software
/services companies
 Eligible to offer to non residents/resident permanent
employees including overseas working directors
against the issue of ordinary shares.
 Atleast 80% of its turnover is from software related
 Annual export earning of 100 crore from such
 The shares issued against ADR/ GDR ahould be
treated as direct foreign investment in the issuing
 It can not exceed more than 51% of the subscribed
Advantages of ADR/GDR
 1. Can be listed on any of the overseas
stock exchanges/OTC/Book entry
transfer system
 2.Freely transferable by non resident
 3.They can be redeemed by ODB
 4.The ODB should request DCB to get
the corresponding underlying shares
released in favour of non resident
investors.(Share holder of issuing
Capital gain
 Sale price of shares- conversion price
 Conversion price= price of shares at Bombay
Stock Exchange or NSE on the date of
conversion of ADR/GDR into shares.
 From the date of conversion into shares till
the date of sale is more than 12 months-long
term capital asset-10% tax
 Less than 12 months-short term –normal rate
of tax.
 All trading transaction outside India by non-
resident-not taxable in India
After redemption of
The shares held by nonresident investor
The dividend received on such shares is
taxable at 10%
Double taxation agreement
 As long as the underlying shares are
with custodian bank and before they
are sold by nonresident to resident-
concesstional treatments applicable
 It is also applicable for the dividend and
received or capital gain on transfer of
underlying shares.
Gift tax and wealth tax
 As long as ADR/GDR or under lying
shares with ODB exempted from
 If they are gifted to nonresident-not
treated as income of the recipient.
 If gifted to resident- treated as income
of the recipient.
 1. Dividend- Taxed AT THE RATE OF 10%
 The issuing company should transfer the net
dividend (after TDS at 10%) to ODB
 ODB distribute them to Non-residents
proportionately to their holdings.
 Credit also be given