Can NRIs invest in tax free bonds?

NHAI & PFC tax free bonds are in the primary market for subscription & NRIs are allowed to invest in these bonds. This will also apply to upcoming tax free bonds by HUDCO & Railway Finance Corporation.

Can NRIs invest in tax free bonds? 1NRI including Person of Indian Origin (PIO) can invest in tax free bonds but I am not sure how they can invest in such a limited time. It is expected that NHAI & PFC bonds can oversubscribe in first three days. They may close their issues after three days so NRIs have very limited time to take any action. To save time, NRIs can think of investing through platforms like ICICI Direct or if they have given power of attorney to family members.

It is clearly mentioned in NHAI prospectus that applications by NRI in physical form shall be submitted only at the Collection Centres located at Mumbai, Delhi, Ahmadabad, Hyderabad, Chennai, Bangalore, Chandigarh and Kochi.

You can read detailed post on – NHAI & PFC Tax Free Bonds

Tax Free Bonds – NRI FAQs

Can NRIs subscribe to bonds in India?

An NRI is eligible subscribe to corporate deposits, NCDs and PSU bonds issued in India. However the issuer should specifically 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.

https://www.tflguide.com/2017/03/send-money-to-india.html

What will be the tax treatment of income from Tax Free Bonds for NRI?

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. (Tax planning for NRIs)

Which accounts/facilities are required to invest in these bonds?

  • An NRI can apply to these bonds through their NRE/NRO accounts.
    • To apply on repatriable basis: Apply with a rupee denominated draft/cheque drawn on an NRE account.
    • To apply on non-repatriable basis: Apply with a rupee denominated draft/cheque drawn on an NRO account.

How can NRIs withdraw their investments from these bonds? Can NRIs repatriate the proceeds to the foreign country?

The bonds will be listed on exchanges and can be sold any time before maturity. Otherwise the investor can wait up to maturity when the lender would return the face value. Only bonds in demat form can be traded. The sale can be made through any broker.

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.

In case the application is made on a repatriable basis, the funds can be taken to the foreign country of the NRI.

https://www.tflguide.com/2013/05/it-is-not-legal-for-an-nri-to-hold-resident-saving-account-or-open-ppf-account.html

What Documents would be required to apply to these bonds?

If application in made for allotment in physical form, the following documents would be required:

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

In which account will NRIs receive the interest and redemptions?

In case of application in demat form, the payments will be made to the bank account connected through the demat account.

In case of application by demat form, a copy of a cancelled cheque on the account, in which the investor wishes to receive payment, is to be attached to the form.

The account in which payments are received can be different from which the application is made. However, in both these cases, note that if initial investment is made from an NRO account, the payments will have to be received in NRO account. If investment is made from NRE account, the payments can be received in both NRO or NRE account.

What Demat details are required?

The applicant needs to provide the beneficiary account number and depositary participants identification number in the application form. The name in application form should be identical to those appearing in the demat accounts.

Source: Draft Prospectus filed by NHAI

If you have any questions on these bonds – feel free to ask.

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Hemant Beniwal is a CERTIFIED FINANCIAL PLANNER and his Company Ark Primary Advisors Pvt Ltd is registered as an Investment Adviser with SEBI. Hemant is also a member of the Financial Planning Association, U.S.A and registered as a life planner with Kinder Institute of Life Planning, U.S.A. He started his Financial Planning Practice & TFL Guide Blog in 2009. "The Financial Literates" is a dream & mission to make Indians Financial Literate.

8 COMMENTS

  1. […] has written a post specifically focusing on the NRI aspects of the NHAI bonds, which will be a useful read for NRIs interested in either this issue, or generally in tax free […]

  2. Thank you for this super informative article. Can you pls let me know when these bonds will be listed on stock exchanges after allocation to sell? e.g. within 1 months, 6 months or ?

  3. Thanks for the nice article.If I repatriate the money to UK, do I have to pay tax
    on that money in UK or its going to be tax free in UK as well.

    • Hi Ajay,

      It depends on the your country tax laws. You will be able to get a clear picture from a CA in your country.

  4. I have a few queries
    Case 1: One of my clients came back to India on August 6th 2011 after three years in Dubai. Since then he is employed here in Noida. He has a Indian Passport. He transferred all his money from his NRE and NRO accounts to one of his 5 years old savings account in HDFC bank. He has no intentions of going abroad in near future. Can he issue a cheque from his HDFC bank for investment in IRFC.

    Case 2: My other client is in Italy from the past few years and is presently there only. He has a Indian Passport. He will come back to India permanently after a couple of years. After that he intends to close his NRO and NRE accounts. Can he submit the cancelled cheque of his normal savings account in India.

    Case 3: My third client is in US, having Indian passport but he has no intentions of coming back to India for permanent residence in near
    future.

    Regards
    Nikhil

  5. I am an NRI and want to buy tax free bonds which can be held by NRIs from secondary market through a broker in Demat Form and will pay to the broker from my NRO A/C through NEFT. What is the procedure for purchase and what documents are required for making the purchase and putting in Demat A/C? Which tax free bonds are available in secondary market for NRIs?

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