Can NRIs Invest in Tax Free Bonds in India?

We fail to understand that why NRIs are being meted step motherly treatment in India when we know that India as a nation requires their earned dollars for economy and infrastructural growth.

NRE or NRO Account

We fail to understand that why have so many accounts like NRE or NRO etc. Just note the riders for subscription that if initial investment is made from an NRO account, the payments will have to be received in NRO account. Another case where if investment is made from NRE account, the payments can be received in both NRO or NRE account.

So far so good and now best news is that NRIs can invest in corporate deposits, NCDs and PSU bonds issued in India. However the issuer should enable the ‘NRI Window’ in an offer. Tax free bonds Public issue is open for NRIs to subscribe on both repatriable and non-repatriable basis. An NRI can subscribe to these bonds through their NRE/NRO accounts. Only bonds in demat form can be traded and thus they need to have the demat account. These bonds are listed on BSE and NSE and thus sale can be made through any broker. While making the subscription, applicant needs to provide the beneficiary account number and depositary participants identification number in the application form.

• Repatriable basis: Apply with a rupee denominated draft/cheque drawn on an NRE account. The interest income on these bonds can be repatriated after obtaining a certificate from a chartered accountant that the said amount is eligible for repatriation.
• Non-repatriable basis: Apply with a rupee denominated draft/cheque drawn on an NRO account. The funds or proceeds can be taken to the foreign country of the NRI.

Documents Required for Subscription

• Indian Passport
• PAN Card issued by Indian Income Tax Department
• Overseas address proof: like utility bills, driving license and bank details.

So NRIs can invets freely in NHAI, PFC tax free bonds which are already in market or can be ready for upcoming HUDCO & Railway Finance Corporation tax free bonds. Just to add more flavour, the interest on these bonds is tax free. Thus no income tax would be required to be paid, nor will it be subject to TDS. However, capital gains on these bonds (if any) are taxable like normal corporate bonds. Thus capital gains will be subject to TDS as usual.

Demat Account

In case of application in demat form, the payments will be made to the bank account connected through the demat account. Just note that the names have to match in order in application and demat account.

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