NRI Guide to NCD IPOs: Eligibility, NRE vs. NRO & FEMA Rules

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If you’re an NRI who has seen a high-coupon NCD IPO in the newspaper and wondered if you could participate in it, you’re not alone, and the honest answer is: it depends, and often, no. Non-Convertible Debentures (NCDs) have become a popular fixed-income option for resident Indians who want to earn double-digit coupons from NBFCs and housing finance companies. In comparison to equity IPOs, where NRIs can participate fairly easily, the vast majority of NCD public issues in India exclude NRIs from their applicant pool.

This isn’t an oversight. Issuers make the decision to exclude NRIs to avoid the compliance burden of dealing with foreign investments and the reporting requirements under FEMA. So before you get your NRE or NRO account ready to bid, it’s worth understanding exactly where you stand. This includes understanding what the actual eligibility looks like, why your choice of bank account determines your right to repatriate, and what the RBI mandates you to disclose once you’re in. This guide walks through all of it in plain terms. 

What Is an NCD, and Why Do NRIs Even Consider It?

An NCD is a loan given to a company for a fixed coupon over a specific period of time. It is similar to a corporate fixed deposit, except that an NCD does not give the company the right to convert the loan to equity. For NRIs used to near-zero returns on foreign savings accounts, a listed NCD offering 9-11% annually looks attractive. The catch: liquidity, credit risk, and eligibility.

Can NRIs Actually Bid on NCD IPOs? The Eligibility Reality

Here’s the part most people get wrong: the Reserve Bank of India doesn’t broadly forbid NRIs from investing in NCDs. The restriction usually comes from the issuing company itself, which decides, issue by issue, whether to open the offer to NRIs. In practice:

• Most public NCDs issued by NBFCs and HFCs in India explicitly mention that NRIs cannot apply in the prospectus.
• If an issuer allows NRI participation, applications from individuals who reside in, or are subject to the tax laws of, the USA and Canada are almost always rejected outright to sidestep US securities law and FATCA complications.
• If the issuer allows NRI participation, investments can be made only through an NRE or NRO Non-PIS bank account. The Portfolio Investment Scheme is not applicable to NCDs. 
• Even when eligible, the minimum investment is typically ₹10,000 (10 NCDs of ₹1,000 face value), the same as for resident investors.

The practical takeaway: always check the “Issue Related Terms” or eligibility section of the Red Herring Prospectus/Shelf Prospectus of the specific NCD before assuming you can apply; don’t rely on the previous issue’s rules carrying over.

NRE vs NRO: Which Account Should You Bid From?

If an NCD issue does permit NRI participation, your account choice determines what happens to your money later—not just how you invest it.

Feature	NRE Account	NRO Account
Source of funds	Foreign income remitted to India	Indian income (rent, dividends, prior investments) or foreign funds
Repatriation of investment proceeds	Fully repatriable	Capped at USD 1 million per financial year (after taxes)
Interest earned on the account itself	Tax-free in India	Fully taxable in India
TDS on NCD interest income	Applicable, per DTAA/Section 195	Applicable, per DTAA/Section 195
Ideal for	NRIs who want unrestricted future repatriation	NRIs investing in India-sourced money, less concerned about repatriation limits

If you will eventually transfer the entire investment (principal plus gains) back abroad without limits, bidding through NRE is cleaner. If you’re investing rupee income already sitting in India, NRO works fine; just remember the annual repatriation ceiling applies when you want to move it out later.

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FEMA Rules You Can’t Afford to Ignore

Investments made by NRIs in Indian securities, including NCDs, come under the Foreign Exchange Management (Non-Debt/Debt Instruments) framework of the RBI. A few points matter most in practice:

• Investments can be made on a repatriation basis (viewed as foreign investments and subject to sectoral limits) or a non-repatriation basis (viewed as domestic investments and no requirement to repatriate sale proceeds).
• On the repatriation route, your holding per NCD series generally can’t exceed the limits prescribed for FDI in convertible instruments of that category.
• You’re required to report the remittance and the resulting NCD holding to the RBI, typically within 30 days of the investment, through your bank’s reporting channel.
• No additional approval from the RBI is needed for application. The main responsibility lies with the reporting bank and the issuing company. However, you will be held responsible for the impact of your incomplete documents (PAN, KYC, and FEMA declaration). 

Tax on NCD Interest: What Actually Lands in Your Account

Interest earned by an NRI on NCDs is subject to TDS under the provisions governing payments to non-residents in Section 393(2) of the Income-tax Act, 2025 ^[1], which came into effect on April 1, 2026, and replaced the corresponding provisions of Section 195 of the Income-tax Act, 1961. For ordinary NCD interest that does not fall under a special concessional category, the applicable TDS rate is generally the rate prescribed as “rates in force,” along with the applicable surcharge and health and education cess.

A lower rate may be available under a Double Taxation Avoidance Agreement (DTAA), subject to the NRI meeting the treaty conditions and furnishing the required documentation, including a Tax Residency Certificate (TRC) and the prescribed treaty information, now furnished through Form 41 (earlier Form 10F).

One practical filing change worth flagging: the remittance certificates for NRIs and their chartered accountants, Form 15CA and Form 15CB, have been replaced by Form 145 and Form 146 respectively ^[2], and the TDS certificate formerly known as Form 16A has been changed to Form 131 ^[3]. The underlying tax treatment has not changed merely because of these form-number changes; the paperwork and reporting framework have been updated under the new Act. 

Capital gains on the sale or redemption of listed NCDs after the July 2024 Budget continue to follow the 12.5% flat rate without indexation for long-term gains and slab-linked short-term rates, both preserved unchanged under the new Act. As before, if excess TDS is deducted, it’s recoverable only by filing an Indian income tax return.

A quick sanity check for readers: the new Act retains the full tax exemption on NRE and FCNR account interest.

NCD IPOs Frequently Asked Questions

Sources

1. Income Tax Department — Section 393, Income-tax Act, 2025
2. Income Tax Department — Income Tax Forms FAQs
3. Income Tax Department — Form 131 FAQs

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.