Mr Gupta was also ordered to pay a $5 million fine. He was convicted in Manhattan federal court last June for leaking Goldman Sachs boardroom secrets to Raj Rajaratnam, the hedge fund manager at the center of a U.S. government crackdown on insider trading over the past four years.. (Watch)
Some legal experts said on Wednesday's sentence came as a surprise, while others said the judge struck a fine balance.
U.S. District Judge Jed Rakoff told a somber courtroom audience, including Mr Gupta's wife and four adult daughters, that the illegal sharing of corporate secrets at the height of the 2008 financial crisis "was the functional equivalent of stabbing Goldman in the back."
Mr Gupta, 63, gave no visible reaction to the sentence, which was given at the end of a 30-minute statement in which the judge spelled out the businessman's "extraordinary" philanthropy over decades that stood in stark contrast to his crimes.
Bill Gates, Microsoft Corp's co-founder, and former United Nations Secretary-General Kofi Annan were among 400 friends and luminaries who had written letters to the judge urging leniency.
During the trial, the court heard how Gupta had tipped off his then friend and business associate Rajaratnam between September and October of 2008. Within minutes of a conference call of members of Goldman's board on September 23, 2008, Mr Gupta told Rajaratnam that influential investor Warren Buffett was infusing $5 billion into the investment bank. Rajaratnam traded on the information as the market was closing.
Mr Rakoff said during the two-and-a-half hour sentencing proceedings that the t ip "was not only overwhelming, but it was disgusting in its implications ... a terrible breach of trust" at a time when Goldman Sachs was in turmoil.
But the judge also said: "I have never encountered a defendant whose past history suggests such an extraordinary devotion ... to people in need."
Mr Gupta had faced a maximum sentence of 20 years for securities fraud and five years for conspiracy. Federal judges have wide leeway in sentencing and Rakoff has a reputation for veering from guidelines for courts in handing down punishment.
Minimum security prison sought
Mr Rakoff ordered Mr Gupta to begin his sentence on January 8, 2013. The U.S. Bureau of Prisons will decide where, but his lawyer asked for the minimum security prison in Otisville, New York.
The judge denied Mr Gupta's lawyer's bid to have him freed on bail pending an appeal, which could last as long as two years. His lawyer, Gary Naftalis, said in a statement that "we believe the facts of this case demonstrate that Mr. Gupta is innocent."
The former Goldman director is the most influential corporate figure to be convicted in the wide U.S. probe of insider trading involving fund managers, traders, consultants and executives. He is a former global head of the McKinsey & Co management consultancy, and once sat on the boards of Procter & Gamble Co and American Airlines, as well advising philanthropies including the Bill and Melinda Gates Foundation.
Mr Gupta was born poor in India and orphaned as a teenager but rose to the top of the corporate and philanthropic elite.
His sentence was less than the eight to 10 years sought by prosecutors, but more than the probation and community service in Rwanda sought by Gupta's lawyers. The judge dismissed that proposal as "a kind of Peace Corps for insider traders."
It was also less than some other insider trading defendants who were jailed for between four and 10 years. Rajaratnam is serving an 11-year prison sentence, one of the longest for insider trading.
On Thursday, a U.S. appeals court in New York is set to hear Rajaratnam's appeal. He argues prosecutors should not have been able to play phone taps of his conversations at his trial because he says they were improperly obtained.
"Sanctity of corporate confidence"
Assistant U.S. Attorney Richard Tarlowe argued for a sentence of at least eight years, telling the court "Mr Gupta knew as much about the sanctity of these types of corporate confidences as anybody, and that's what makes it so shocking."
New York securities class action and shareholder rights lawyer Mark Rifkin said the judge "understood both sides of the argument, and the relatively light sentence he imposed balances Gupta's misuse of his position against a lifetime of good work."
But Andrew Stoltmann, an attorney and investor rights advocate based in Chicago, wondered whether Gupta's "Mother Teresa-like halo" had warranted a sentence that was "little more than a slap on the wrist."
"He had such an important role at some of these companies that it is kind of the ultimate betrayal of trust," he said.
When Mr Gupta addressed the court, he read from a statement for six minutes, using bland language that stopped short of fully admitting his conduct, but apologising to "extraordinary institutions and outstanding people" and to his family.
"I feel terrible that they have been burdened with totally undeserved negative attention. I apologize to them and ask for their forgiveness," Gupta said.
Naftalis, arguing for a lenient sentence, said his client had suffered a "fall from grace of Greek tragedy proportions."
"This was an iconic figure who had been a role model for countless people around the globe," he said. "He is no more."
The case is USA v Gupta, U.S. District Court for the Southern District of New York, No. 11-cr-907