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As an NRI who may be interested in the Indian bond market, it is probably abundantly clear to you the current advertising trend surrounding India’s bond market; the safe sovereign yields, the “shop directly with the RBI” option, and the flood of foreign capital into Indian Debt on the news are all true.
What most articles fail to cover is the most important part: which bank account you use completely alters the chances you will be able to get your money back, and a decent coupon in Indian Rupees may be a lousy return in US Dollars. This guide will cover the four most important points to know before you decide to buy Indian bonds.
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NRE vs NRO Accounts: The Gateway That Decides Everything
Each rupee an NRI uses to purchase bonds in India must be funnelled through either an NRE or an NRO account. Choosing the wrong account can result in your funds being stuck in India for longer than you prefer.
- NRE (Non-Resident External) Account: Holds earnings you’ve remitted to India from abroad. Bonds purchased from NRE accounts are fully repatriable. Interest and the principal amount can be transferred back to USD, GBP or AED without limits.
- NRO (Non-Resident Ordinary) Account: Holds income earned from India. These accounts have an upper limit of USD 1 million for repatriation annually. You have to fill out Form 15CA/15CB and engage a chartered accountant to sign off on your request to repatriate funds.
If you are concerned about repatriation, purchase bonds from NRE accounts, even if it involves first transferring funds from NRO to NRE, which also requires the same certification.
The Fully Accessible Route (FAR): India’s Golden Ticket for NRIs
The FAR, introduced by the RBI, is what makes direct sovereign bond investing viable for NRIs at scale: no investment ceiling, no quota queue.
Because of the FAR, non-residents no longer face limits when investing in certain sovereign bonds, meaning that NRIs can access G-Sec yields the same way that major local banks can. To broaden this market, the RBI announced that as of June 2026, FAR will include 15, 30, and 40-year bonds [1], along with previously included 5, 7, and 10-year bonds.
Practically, this means:
- You can get certain G-Secs and State Development Loans (SDLs) without limits
- You don’t have to register with SEBI; you only need an NRI demat account linked to an NRE or NRO account
- Not all G-Secs are eligible; check the security’s tag before buying
- You can access this route through the RBI Retail Direct, OBPPs, or your bank/broker’s bond desk
The Currency Risk No One Talks About
Here’s the part that often gets overlooked: A headline yield measured in rupees does not represent the actual return after converting back to your home currency.
Let’s do the math. You could receive a 7.0% G-Sec yield. But if the rupee depreciates 2.5% against the dollar over that year, your effective USD return would be close to 4.5%. This isn’t hypothetical; the rupee depreciated from approximately ₹85.5 to over ₹95 per dollar from March 2025 to May 2026 [2]. FPI outflows, US tariff impacts, a widening current account deficit, and high crude prices were all contributing factors. The currency remains unstable, even after a partial recovery.
Here’s a hypothetical to explain it better:
| Scenario | INR Yield | INR Depreciation | Effective USD Return |
| Stable rupee | 7.0% | 0% | 7.0% |
| Moderate depreciation | 7.0% | 2.5% | 4.5% |
| Sharp depreciation (2025-26 style) | 7.0% | 8-10% | Negative to flat |
The fix: Weigh this against the inflation divergences between India and the US, then invest cautiously and diversify. Alternatively, if currency risk is a concern, look to FCNR (Foreign Currency Non-Resident) deposits. These give the advantage of fixed income, while the principal stays in USD, GBP, or another foreign currency, thus protecting from conversion risk, though usually at a lower yield than rupee bonds.
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Taxation: TDS, DTAA, and What You Actually Keep
This is the point at which many NRIs are caught out if they have not thought ahead.
- NRE account/bond interest: Completely tax-free in India, no TDS.
- NRO account interest: NRO account interest is subject to TDS at 30% plus cess and surcharge, which can be more than 31% and is significantly more for larger sums under the old regime.
- DTAA relief: India has tax treaties with over 94 countries [3]. By obtaining a Tax Residency Certificate (TRC) and Form 10F [4], and by signing a no-permanent-establishment declaration, you may be able to get a better TDS rate. Examples include the India-UAE DTAA, where interest may be taxed at 12.5%, and the US and UK, with effective rates of about 15%. If TDS exceeds your tax liability, you may obtain a refund by filing an Indian ITR.
As a general rule, for long-term bond investments, prefer routing investments using the NRE account. If you have to use the NRO account (for example, to reinvest rental income), be sure to submit the DTAA request before the interest is credited, as requests for DTAA relief cannot be made afterwards.
Indian Bonds for NRIs: Frequently Asked Questions
Yes, Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) have the option to invest in a broad spectrum of Indian debt instruments as sanctioned by the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI). These options include the Central Government Securities (G-Secs), State Development Loans (SDLs), Treasury Bills (T-Bills), Public Sector Undertaking (PSU) bonds, and corporate Non-Convertible Debentures (NCDs).
The Fully Accessible Route (FAR) is a special regulatory framework introduced by the RBI to invite foreign investment. Through FAR, the government marks certain G-Secs and SDLs, in which there are no upper limits for NRIs. This encourages NRIs to invest larger amounts in safe sovereign debts.
Interest income from Indian Bonds is treated as income from other sources and is then liable to income tax in India:
TDS Mandate: The interest earned would be subjected to Tax Deducted at Source (TDS) at a flat 30% (plus the applicable surcharge and cess) when the amount is credited to the NRO account by Indian banks or other platforms.
The DTAA Advantage: If India has a Double Taxation Avoidance Agreement with your country of residence (such as the US, UK, and UAE), interest on Indian bonds may be exempt under the treaty, and you may be entitled to a Tax Residency Certificate (TRC), which may decrease the TDS down to 10%-15%.
Yes, absolutely. NRIs selling residential or commercial property in India can invest in the Section 54EC bonds (offered by public companies, namely REC, PFC, NHAI, IRFC) to offset their Long-Term Capital Gains (LTCG) tax.
The Rule: The investment must be made within 6 months of the property sale.
The Limit: The maximum investment allowed is ₹50 Lakhs per financial year. The bonds have a mandatory lock-in period of 5 years.
Sources
- https://www.pib.gov.in/PressReleasePage.aspx?PRID=2269719®=48&lang=2
- https://www.federalreserve.gov/releases/h10/hist/dat00_in.htm
- https://cleartax.in/s/section-90-90a-91-of-income-tax-act
- https://cleartax.in/s/form-10f-income-tax
Disclaimer
Fixed returns do not constitute guaranteed or assured returns. Investments in corporate debt securities and municipal debt securities/securitized debt instruments are subject to credit risks, market risks, and default risks, including delay and/or default in payment. Read all the offer-related documents carefully. This blog/article should not be construed as financial advice or as an offer or recommendation to buy or sell any security or any products/services of/on GoldenPi or any product/services of its third-party client(s). For a detailed calculation of YTM, visit our website. T&C’s Apply.
