NRI Investments In NCDs: Eligibility Rules And Tax Implications


Non-convertible debentures (NCDs) are a reliable and long-term investment option for NRIs. Debentures are the best option for people looking for something other than stocks and mutual funds for NRI because they offer fixed returns, strong liquidity, and low risk. Non-convertible debentures are available to residents, non-residents, and people of Indian descent. Here is all the information you need to know regarding NRI investments in NCDs, eligibility rules, and tax implications.

Who are NRIs?

NRI stands for Non-Resident Indian. An NRI is an individual who resides in a foreign country for more than one hundred and eighty-three days (183 days) in a financial year. The reason for staying abroad may be for employment or business purpose. There are various investment plans for NRIs in India which often allure them. One of the NRI investments in India is NCD. Read on to study it in detail. 

What are NCDs?

NCD stands for Non-Convertible Debentures. NCDs are one of the most popular investment plans for NRIs in India. Businesses in India issue an NCD to raise funds. It helps them get funds without having to dilute their equity. NCDs have fixed interest rates and fixed tenure. But, Non-convertible Debentures, as the name suggests, cannot get converted into equity shares of the company.

Types of NCDs.

NCDs can be either secured or unsecured:

  • Secured NCDs are secured by the issuing company’s assets. This means that in the event of a default or non-payment, investors may be entitled to compensation through the sale of the company’s assets. 
  • Unsecured NCDs are riskier than secured NCDs because any assets do not cover them. Compared to secured NCDs, unsecured NCDs give investors higher yields.

Key Facts About NCDs.

Listed below are a few key facts about NCDs:

  • The maturity period of NCDs ranges between 90 days to 30 years. 
  • It provides greater returns than fixed deposits (FD) in the bank. 
  • NCDs are made available through a public offering, or NCD IPO.
  • Before becoming public, they are rated by credit rating companies.
  • NCDs are marketable instruments that are listed on stock markets.
  • The NCD market is tightly controlled.
  • Only NCDs from businesses with strong credit ratings are successful.
  • The entire NCD investment process is done online.
  • Your Demat account receives credit for the allocated NCDs.

NRI Investment in NCDs.

The Reserve Bank of India (RBI) allows NRIs to invest in various NRI investments in India. The NRI needs to follow certain rules set by Foreign Exchange Management Act (FEMA) for investing in India. The rules are based on investment plans and NRIs who are willing to invest. NRIs can choose to invest in NCDs on a repatriation and non-repatriation basis. If the issuing company’s rules permit it, NRIs and people of Indian descent can invest in companies that sell NCDs. According to the eligibility criteria, applications from the people and organizations listed below are likely to be rejected.

NRIs and other foreign nationals who are:

  •  Based in the USA, and or
  • Settled in the USA, and/ or
  • Residents/ Nationals of the USA, and/ or
  • Subject to any taxation laws of the USA.

NCD Eligibility Rules For NRI

NRI investments NCD in India are governed by several rules established by the FEMA regulations of the RBI. A firm with Indian incorporation may raise money from NRIs through an investment in an NCD provided that it meets the requirements listed below:

  • The issuing corporation issues NCDs through a public offering.
  • The NCDs can only be redeemed after three years.
  • Transferable Development Rights (TDRs), Chit Funds, real estate, agriculture, and plantations are not and will not be the focus of the issuing firm.
  • The investment is made using funds from the investor’s NRE or FCNR account or funds obtained via remittance from outside of India.
  • The NRI must give the RBI a statement of receipt of remittances and the issue of NCDs within 30 days of investment.
  • The interest rate on NCDs must not be more than 3% over the benchmark rate.
  • The aggregate holding of an NRI under each series of NCDs for NRI investments on a repatriation basis may not exceed the ceiling established for the issuance of equity shares and convertible debentures for FDI.

You must carefully review the terms and conditions and the documentation before applying for investment plans for NRI. 

Tax Implications on NCD for NRIs.

An NRI must abide by local tax regulations when investing in NCDs in India. There are two types of taxes on NRI investments in NCDs. 

  1. TDS: Tax Deduction at Source @20% on interest earned.
  2. LTCG: Long-Term Capital Gains @ 20%.

For instance, if you receive interest on an investment of Rs. 20,000, Rs. 4,000 will be subject to TDS at a rate of 20%, and Rs. 16,000 would be credited to your account. However, the NRI investments also have a three-year redemption period. After three years, a 20% long-term capital gains tax will be levied on the money made by selling NCDs.


India offers various NRI investment plans. Non-convertible debentures(NCDs) are more reliable options than stocks and mutual funds for NRI. NCDs have fixed tenure and fixed interest rates. They can earn you higher returns than Fixed deposits. However, you are liable to pay two taxes on NRI investments in NCD. First is TDS @20% on the interest earned and second is the Long-term Capital Gains @20% after the three-year redemption period. To find more such useful and informative blogs head to our website