How are foreign-currency Indian bonds and GDRs taxed for an NRI?

Under Section 115AC, a concessional regime: interest and dividends at a flat 10%, and long-term gains at 10% up to 22 July 2024 or 12.5% after, without indexation. No expense or Chapter VI-A deductions are allowed against this income.

Do I have to file an Indian return?

Not if your only Indian income is such interest or dividends and tax has been deducted on it (Section 115AC(4)). If you have other Indian income, or want to claim a treaty rate or refund, you file as normal.

Can I reduce the 10% further?

Possibly, if your country's tax treaty with India gives a lower rate on interest or dividends. You would file with a tax residency certificate and Form 10F to apply the treaty rate and recover any excess.

Is this the same as the general NRI investment regime?

No, it is narrower. Section 115AC is specific to foreign-currency bonds and GDRs. The broader NRI foreign-exchange-asset regime under Chapter XII-A is separate and can suit other holdings, so it is worth comparing which applies.

Investments

Bonds and GDRs of an Indian company bought in foreign currency

You hold foreign-currency bonds or depositary receipts of an Indian company and want to know how the income and gains are taxed.

You put foreign currency into bonds of an Indian company or a public-sector undertaking, or into its global depositary receipts, the instruments Indian companies issue abroad to raise foreign money. Now interest, dividends or a sale are coming through, and the ordinary Indian tax rates look steep. There is a specific concessional regime for exactly these foreign-currency instruments held by a non-resident, with flat low rates and, in many cases, no Indian return to file at all. It is worth knowing it exists, because the default rates are higher.

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Last reviewed: 26 July 20266 min readReviewed by Preetesh Maloo, CA

The short answer

Bonds of an Indian company or a public-sector undertaking, and global depositary receipts, that a non-resident buys in foreign currency fall under Section 115AC, a concessional regime. Interest on the bonds and dividends on the GDRs are taxed at a flat 10%, and long-term capital gains on their transfer are taxed at a concessional rate, 10% up to 22 July 2024 and 12.5% after that, computed without indexation. No deductions for expenses or under Chapter VI-A are allowed against this income. And if your only Indian income is such interest or dividends on which tax has been deducted, you do not have to file an Indian return.

References on this page

Section 115AC: non-resident's foreign-currency bonds/GDRs of an Indian company or PSU are a concessional regime
Interest and dividends taxed at a flat 10%; no expense or Chapter VI-A deductions
Long-term capital gains at 10% up to 22 July 2024, 12.5% on/after 23 July 2024, no indexation
No return needed if the only income is such interest/dividends with tax deducted (Section 115AC(4))

The concessional rates

Section 115AC is a special regime for a narrow set of instruments: bonds of an Indian company or of a public-sector undertaking, and global depositary receipts of an Indian company, where a non-resident acquired them in foreign currency. For these, the ordinary slab and surcharge maths is replaced by flat rates.

Interest on the bonds and dividends on the GDRs are taxed at a flat 10%. Long-term capital gains on transferring them are taxed at a concessional rate too, 10% for transfers up to 22 July 2024, and 12.5% for transfers on or after 23 July 2024, following the wider capital-gains change, and computed without indexation. The trade-off is that no deduction is allowed for expenses against this income, and no Chapter VI-A deductions either, so it is a clean flat rate on the gross. For most holders the flat 10% on income is well below what the ordinary route would cost.

Often no return to file

A practical convenience comes with the regime. Under Section 115AC, if a non-resident's total Indian income consists only of interest or dividend income of this kind, and tax has been deducted at source on it, there is no obligation to file an Indian return of income.

So a non-resident whose only Indian income is interest on qualifying Indian company bonds, with the 10% deducted, is not forced into the return system. That said, if you have other Indian income, Indian rent, a property sale, other capital gains, the exemption from filing does not apply and you file as normal, putting this income in at its concessional rate. And if you want to claim a treaty rate lower than 10%, or a refund, you would file to do so. A practising CA checks whether you fall in the no-return category or should file to claim something back.

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What's involved

What the CA actually does

1
We apply the right rate
We tax your bond interest and GDR dividends at the flat 10%, and gains at the concessional rate, rather than letting the ordinary rates apply.
2
We tell you if you must file
We check whether your only Indian income is this TDS-paid income, in which case no return is due, or whether other income means you file.
3
We check a treaty rate
Where your country's treaty gives a rate below 10%, we file to apply it and recover any excess deducted.
4
We compute the gains correctly
We work any long-term gain at the concessional rate without indexation, so the sale is taxed on the right basis.

What to have ready

Documents you'll typically need

The bond or GDR holding and purchase-in-forex evidence
Interest, dividend and any sale statements
The TDS deducted, if any
Your PAN, TRC and residency details

Your destination country can change the details

Requirements differ from one consulate, university and visa route to the next — how recent the figures must be, how long funds must have been held, and which certificates are mandatory. We assemble the documents around the exact checklist you're applying under. To see how India's tax treaty with your country of residence affects related filings, set your country below or compare all 31 countries.

Frequently asked questions

Common questions

If this matched your situation, these go further

The NRI special regime for investments bought in foreign currency The forex rule on Indian shares: computing your gain in your own currency PMS, AIFs and GIFT City — how each investing route is taxed for an NRI NRI ITR filing (we file for you)DTAA TDS recovery Stocks / equity redemption coordination Capital gains calculator Form 10F generator

Holding Indian bonds or GDRs bought in forex?

Tell us what you hold and the income. A practising CA will apply the concessional rate and check filing on a free call, no obligation.

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