Corporate Bonds and NCDs for NRIs: Who Can Actually Buy Them, How the Interest Is Taxed, and Whether the Yield Beats an NRE FD

You are an NRI in London or Dubai, you have a rupee balance sitting in your NRO account, and a relationship manager has just pitched you a 9.25% NCD from a well-known NBFC. The NRE fixed deposit across town pays 7%. The bond looks like it wins by more than two points, and 2.25% on a Rs 50,00,000 allocation is over a lakh a year. The pitch is hard to ignore.

The pitch is also built on the wrong number. The 9.25% is a coupon, not a return. Run it through Indian tax and net it against the credit risk a bank deposit does not carry, and the gap does not just narrow, it usually inverts. Corporate bonds and non-convertible debentures (NCDs) are a legitimate part of an NRI portfolio, but they sit inside a debt-tax regime that was rewritten in 2023 and again on July 23, 2024, and the marketing has not caught up. This guide is about the three numbers the pitch leaves out: your slab rate, Section 50AA, and the issuer's credit rating.

The 30-second answer: NRIs can hold listed corporate bonds and NCDs on a repatriable basis (NRE-linked demat) or non-repatriable basis (NRO-linked demat, Schedule 4 of TISPRO), but most public NCD issues exclude NRIs in the prospectus, so the secondary market via an OBPP is where you actually buy. Interest is fully taxable at your slab rate with TDS under Section 195 at 20% plus surcharge and cess, because the listed-bond TDS exemption ended April 1, 2023. A DTAA cuts that: the India-UAE treaty caps interest at 12.5%, with no surcharge. Listed bonds held over 12 months get 12.5% long-term gains; unlisted bonds redeemed on or after July 23, 2024 are deemed short-term under Section 50AA and taxed at slab. A 9% bond at a 30% slab nets about 6.2%, usually below a tax-free NRE FD.

This guide assumes you already know the difference between an NRE and NRO account and how repatriation works; if not, start with NRE, NRO and FCNR accounts explained. What follows is the part that costs money: why the issuer, not RBI, decides whether you can buy; how the slab-rate interest and the Section 50AA split reshape the return; and the after-tax arithmetic that decides whether corporate debt earns a place over the FD you already have.

RBI says yes; the prospectus usually says no

The question most articles answer is "does FEMA permit NRIs to buy NCDs?" Yes, it does. The question that actually determines whether you can subscribe is "did the issuer let NRIs in?", and the answer is usually no.

Under the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017, known as TISPRO, an NRI can invest in listed NCDs of an Indian company on either a repatriable or a non-repatriable basis. Non-repatriable investment runs through Schedule 4 of TISPRO, which treats an NRI's money broadly on par with a resident's, with the one catch that it cannot freely leave India. So far so permissive. Layered on top are conditions that have long sat in FEMA for primary issues open to NRIs: the NCD must be issued by public offer, the coupon cannot exceed the State Bank of India prime lending rate by more than 3 percentage points, the debenture cannot be redeemable before three years, and the issuer cannot be in a prohibited sector such as real estate development, agriculture, plantation, transferable development rights, or chit funds. The company is also expected to report the remittance and the NCD allotment to RBI within 30 days.

That reporting line is the whole story. Most public NCD issues in India explicitly exclude NRIs from the eligible-investor categories, not because FEMA forbids it but because the issuer does not want the compliance and reporting burden an NRI allotment creates. So the first thing you do with any NCD public issue is open the prospectus, the Red Herring Prospectus or the shelf-and-tranche document, and read the "Who can apply" or "Categories of investors" section. If NRIs are not named there, you cannot apply, regardless of what TISPRO permits in the abstract. This catches people who read three blogs saying "NRIs can invest in NCDs" and then find every live issue closed to them.

The secondary market is where NRIs actually end up holding corporate bonds. An NRI with the right demat account can buy already-listed bonds on the exchange or through an online bond platform provider (OBPP), the SEBI-registered category (GoldenPi, BondsIndia, IndiaBonds and others) that retails listed bonds to individuals, with tickets now as small as Rs 10,000. SEBI tightened the OBPP rulebook again in early 2026, which is good news for retail buyers. A handful of platforms maintain curated lists of NRI-eligible issues, which saves you reading every prospectus, but verify eligibility against the issue document itself rather than a marketing page.

Repatriable or non-repatriable: pick before you fund the account, not after

This is the decision that shapes everything downstream, and it is set by which account funds the purchase, so get it right at the start.

Investing on a repatriable basis means the money comes from your NRE or FCNR account, foreign earnings you have already brought in, held through an NRE-linked demat account. The principal and the proceeds, including interest, can leave India freely, with no annual ceiling, because they are tracked as foreign capital from the moment they arrive. This is the route if the rupee corpus is money you may want to take home one day.

Investing on a non-repatriable basis means the money comes from your NRO account, typically India-source income such as rent, dividends, or maturing rupee assets, held through an NRO-linked demat account under Schedule 4. Taking the proceeds back out is then subject to the USD 1 million per financial year overall ceiling that applies to NRO balances, and to the paperwork that goes with it: Form 15CA and a chartered accountant's Form 15CB. If the money was always going to stay invested in India, this route is fine and now genuinely simpler than it was.

The simplification arrived a year ago and matters: the Portfolio Investment Scheme (PIS) permission requirement was dropped for NRO accounts. An NRI can now open an NRO trading and demat account and transact in listed securities, bonds included, without a separate PIS letter on the non-repatriable side. The repatriable NRE side still runs through the PIS framework. The practical effect is that the non-repatriable route, once an administrative chore, is now the path of least resistance for money that is staying in India anyway.

In every case the bonds are held in dematerialised form in the relevant NRI demat account. You cannot hold corporate bonds in physical form, and you cannot keep using a resident demat account once your status has changed to NRI, a compliance slip a surprising number of people make after moving abroad and only discover when a fund house or registrar flags it.

Interest is taxed at your slab, and since 2023 it bleeds at source too

Here is where the comparison with an NRE FD starts to hurt, and it is the single most important fact in this guide. Corporate bond and NCD interest is fully taxable in India at your slab rate, as income from other sources, with no exemption of any kind. NRE FD interest, by contrast, is exempt under Section 10(4)(ii) for as long as you remain an NRI. The two instruments do not start from the same line. One coupon arrives whole; the other arrives already taxed.

For years there was at least a cash-flow consolation: listed bonds held in demat form were exempt from TDS under a clause of Section 193, so the income was taxable but you received the full coupon and settled up at filing. That exemption was withdrawn with effect from April 1, 2023 by the Finance Act 2023. For residents, the result is a 10% TDS on listed-NCD interest under Section 193. For NRIs it is steeper, because NRI interest is governed by Section 195, not 193: issuers and platforms deduct at 20% plus surcharge and cess, which layers up to an effective rate in the low-to-mid 20s once the 4% health and education cess and any surcharge are added on larger interest amounts.

You have two levers against this. The first is the DTAA between India and your country of residence, which typically caps tax on interest below the domestic 20%. The India-UAE treaty caps interest withholding at 12.5%, and a useful detail most pitches skip: treaty rates do not attract surcharge or cess on top, so 12.5% under the treaty genuinely beats 20% plus surcharge plus cess under domestic law. To claim the treaty rate at source you need a Tax Residency Certificate (TRC) from your country of residence plus Form 10F, and a deductor willing to apply it. The second lever is simply filing your Indian return: if the TDS overshot your real slab liability, you reclaim the difference as a refund, which is the realistic path for a lower-slab NRI whose actual rate sits below 20%. The documentation mechanics are in DTAA mechanics: TRC, Form 10F and Section 90, and the refund route in TDS for NRIs and how to claim refunds.

Hold on to the takeaway: interest is the worst-taxed leg of the return for most NRIs, because it lands at full slab. At the 30% bracket, nearly a third of every coupon goes to tax before you have done anything wrong.

The 2024 capital gains split: listed bonds kept a concession, unlisted lost everything

If interest is the worst-taxed leg, capital gains are where the listed-versus-unlisted line becomes decisive, and where the post-July-2024 changes really bite.

For listed bonds and NCDs, the holding period to qualify as long-term is more than 12 months, the standard for listed securities. Sell within 12 months and the gain is short-term at your slab rate. Hold beyond 12 months and it is long-term. The long-term rate on listed bonds used to be 10% without indexation; the Finance (No. 2) Act, 2024 lifted the long-term rate on listed securities outside the Section 112A equity basket to 12.5% without indexation, effective July 23, 2024. So a listed bond held over a year and sold today gives a long-term gain at a flat 12.5%. Indexation never applied to ordinary corporate bonds and still does not; it survives only for a narrow set such as capital-indexed bonds.

For unlisted bonds and debentures, this is the trap, and it is new. Under Section 50AA, gains on unlisted bonds and unlisted debentures transferred, redeemed, or maturing on or after July 23, 2024 are deemed short-term regardless of holding period and taxed at your slab rate. There is no long-term concession at all. Before this amendment, an unlisted bond held over 36 months was taxed at 20% as long-term; that route is closed. If a bond is unlisted, assume the whole gain is taxed at slab, exactly like the interest.

This is the precise edge of the broader debt shift people half-remember. The familiar version is "debt mutual funds bought after April 2023 are taxed at slab no matter how long you hold," which is Section 50AA applied to specified mutual funds and market-linked debentures from April 1, 2023. The July 23, 2024 extension pulled unlisted bonds and debentures into the same deemed-short-term net. Listed plain-vanilla bonds escaped it and kept a real 12.5% long-term rate, which is the single best reason to stay listed.

There is a genuine edge worth flagging honestly, because "listed" alone does not settle the tax. Market-linked debentures (MLDs) are listed, yet Section 50AA deems them short-term regardless of holding period, so a listed MLD does not get the 12.5% long-term rate that a plain-vanilla listed NCD gets. The structure of the instrument, not just its listing status, decides the treatment, so read what you are actually buying.

Run the numbers: a 9% listed NCD against a 7% NRE FD at the 30% slab

Abstractions do not settle this; arithmetic does. Take Anjali, an NRI in the UAE, in the 30% slab on her Indian income, with Rs 50,00,000 of repatriable (NRE) funds to deploy for a year. She is choosing between a 7% NRE fixed deposit and a 9% listed NCD from a reputable NBFC, holding the coupon only, bought at par and held one year with no capital gain.

The NRE FD pays Rs 50,00,000 at 7%, which is Rs 3,50,000 of interest, and the Indian tax on it is nil under Section 10(4)(ii). Her net is Rs 3,50,000, an after-tax yield of 7.00%.

The NCD pays Rs 50,00,000 at 9%, which is Rs 4,50,000 of interest, but this is slab income. At 30% plus the 4% cess, the effective rate is 31.2%, so the tax is Rs 1,40,400 and the net coupon is Rs 3,09,600, an after-tax yield of 6.19%. The 9% bond, after tax, nets below the tax-free FD, and Anjali also took on the NBFC's credit risk to get there. On these inputs the FD wins outright.

The counterfactual sharpens it. For the NCD merely to match the FD's 7.00% net at her slab, the coupon would have to clear roughly 10.2% (because 10.2% taxed at 31.2% leaves about 7.0%). A bond paying 10.2% is not a high-rated NBFC at a modest spread; it is a lower-rated issuer pricing in real default probability. So the honest framing is that at the 30% slab, a corporate bond does not beat the NRE FD unless you accept materially more credit risk. (On cash flow, TDS at 20% plus cess on the gross coupon would actually withhold more than her final 31.2% slab tax is computed on, since TDS hits the whole coupon; she reconciles the gap when she files. The final economics are the slab numbers above.)

Where the bond can win: a lower-slab NRI riding a listed long-term gain

The instrument earns its place in narrower conditions, and they are worth seeing with numbers too. Take Rohan, an NRI in the UK whose only Indian income, some rent and interest, leaves him in the 20% slab. He buys a listed corporate bond for Rs 20,00,000, holds it 18 months, rates fall, and he sells for Rs 21,50,000, having also collected an 8% coupon.

The coupon leg, simplified to one year for illustration, is Rs 1,60,000. At his 20% slab plus 4% cess (effective 20.8%), the tax is Rs 33,280, leaving a net coupon of Rs 1,26,720.

The capital gain leg is Rs 21,50,000 minus Rs 20,00,000, a Rs 1,50,000 gain. Held 18 months and listed, it is long-term at 12.5% without indexation plus 4% cess (effective 13%), so the tax is Rs 19,500 and the net gain is Rs 1,30,500. His total after-tax return for the period is Rs 1,26,720 plus Rs 1,30,500, or Rs 2,57,220 on Rs 20,00,000.

Two lessons fall out. First, the capital-gain leg was taxed at an effective 13%, far gentler than the 20.8% on the coupon, which is exactly why an instrument where price appreciation drives the return is more tax-efficient than one that is all coupon, and why staying listed matters. Second, the counterfactual: had this same bond been unlisted, that Rs 1,50,000 gain would have been deemed short-term under Section 50AA and taxed at his 20.8% slab, costing Rs 31,200 instead of Rs 19,500, a difference of Rs 11,700 on one modest trade. The listed-versus-unlisted choice is not academic; it is Rs 11,700 you keep or hand over on a single Rs 1.5 lakh gain.

How corporate bonds sit against the NRE FD and G-secs

The cleanest way to place corporate debt is against the two instruments NRIs actually compare it to, because the contest is decided by tax and risk, not by coupon.

Instrument	Headline rate, 2026	Interest tax for NRI	Credit risk	Repatriable	After-tax yield at 30% slab
NRE fixed deposit	6.25% to 7.25%	Nil, exempt under 10(4)(ii)	Bank, DICGC cover to Rs 5 lakh	Freely (NRE)	Equals the coupon, about 7.0%
Government securities (G-sec)	Around 7% (10-year)	Slab rate	Sovereign, effectively nil	Yes, via FAR	About 4.8%
Listed corporate bond / NCD	8% to 13% by rating	Slab on interest; 12.5% on listed LTCG	Issuer-specific, AAA down to D	NRE route freely; NRO capped	About 5.5% to 8.9%, rating-dependent

The NRE fixed deposit is the benchmark every other option has to beat. Interest is fully tax-free in India while you are an NRI, the principal is freely repatriable, and the only credit risk is a bank's, backstopped by DICGC cover to Rs 5 lakh per bank. SBI's NRE FD rates in 2026 have run roughly 6.25% to 7.25% depending on tenure, with the repo rate parked at 5.25%, so a clean 7% net is the hurdle.

Government securities sit between the FD and corporate debt. NRIs can buy them through the Fully Accessible Route, including via RBI Retail Direct, with no investment cap and effectively zero credit risk. But G-sec interest is taxed at slab, so a 7% G-sec at the 30% slab nets around 4.8%, well under the tax-free FD. G-secs make sense for sovereign safety and for long-duration capital-gain potential if rates fall, not for after-tax income at a high slab. The mechanics are in NRI government bonds and the RBI Retail Direct route.

Corporate bonds and NCDs carry the highest coupons because they carry the most credit risk, and they only beat the NRE FD after tax in specific situations: when your slab is genuinely low (5% or 20% rather than 30%), when the credit spread is wide and the issuer's rating is still solid, or when you are buying for a listed capital gain taxed at 12.5% rather than for coupon income. Outside those, the tax-free FD usually wins, and it wins without the default risk.

Credit risk is the coupon, restated

A bank deposit and a corporate bond are different animals, and the difference is the entire reason the bond pays more. When you buy an NCD you are a creditor of a company, secured or unsecured depending on the terms, and if it defaults you can lose interest, principal, or both. India's market has produced enough NBFC and housing-finance NCD blow-ups for retail holders of high-coupon paper to have learned that the coupon was the market's accurate forecast of the risk all along.

Read the credit rating (AAA down to D, from CRISIL, ICRA or CARE) and treat it as the most important number after the tax-adjusted yield. AAA and AA paper from large issuers is a different proposition from A or BBB paper dangling 11% to 13%. That extra coupon is not a gift; it is the probability-weighted cost of default, handed to you in advance. As an NRI watching from abroad, you are also slower to spot an issuer deteriorating in real time, which is a structural argument for staying at the higher-rated end. Diversify across issuers, do not climb the coupon table chasing yield, and size any single NCD so a default would be an annoyance, not a wound.

The situations the general rules do not cover

A few cases sit outside the clean version of the rules and are worth knowing before you commit.

Market-linked debentures are listed but caught by Section 50AA, so they are deemed short-term regardless of holding period and do not get the 12.5% long-term rate that ordinary listed NCDs do. A listed MLD is not taxed like a listed plain-vanilla NCD, and the marketing rarely makes that clear.

The old PSU tax-free bonds still trade in the secondary market. Their interest is exempt even for an NRI, which makes them genuinely attractive, but any capital gain on selling them is taxable in the normal way, at 12.5% if listed and held over 12 months. They are scarce and trade at a premium precisely because the interest is tax-free, so the yield you actually buy at is lower than the coupon suggests.

The DTAA mismatch on relief is a cash-flow trap even when the final tax is lower. Claiming the treaty rate at source needs the deductor to cooperate and you to hold a valid TRC and Form 10F. In practice many platforms still deduct the full 20% plus surcharge and leave you to reclaim the excess by filing a return, so budget for the drag even if the eventual tax is the lower treaty number.

A status change mid-holding rewrites the treatment. Return to India and become a resident, and subsequent interest and gains move to the resident rules, while the NRE FD exemption falls away the moment your status flips. The instrument is indifferent to where you live; your tax residency is not.

Non-repatriable proceeds count toward the USD 1 million cap. Gains and principal from NRO-route (Schedule 4) bonds sit inside the USD 1 million per financial year repatriation ceiling on NRO balances. If you may want this money abroad later, the repatriable NRE route avoids that constraint from the outset, which is a reason to choose the funding account deliberately rather than by default.

The honest read

Corporate bonds and NCDs are a real, FEMA-permitted option for an NRI, but the honest read is that they are an instrument for specific situations, not a default upgrade over an NRE fixed deposit. The headline coupon flatters them. Put the interest through your slab rate, add the credit risk a bank deposit does not carry, and remember the NRE FD's return is entirely tax-free, and the after-tax gap usually shrinks and often inverts, as Anjali's numbers show at the 30% slab.

So the recommendation, committed rather than hedged. If you are a 30%-slab NRI, the tax-free NRE FD is the one to beat, and most corporate bonds do not beat it; default to the FD. Corporate debt earns its place in three cases, and only these: you are a genuinely lower-slab NRI (5% or 20%), where the refund route and the smaller tax drag tilt the maths; you stay at the listed, well-rated (AAA or AA) end of the market; or you are buying for a listed capital gain taxed at a friendly 12.5% rather than purely for coupon income, as Rohan's trade shows. Avoid the unlisted basket unless you have a very specific reason, because Section 50AA now taxes the whole gain at slab with no long-term relief after July 23, 2024, leaving you with a fully-slab-taxed, illiquid holding. And if you are a Gulf resident, get your TRC and Form 10F in place before the first coupon, because the India-UAE treaty caps interest at 12.5% with no surcharge, which materially changes the comparison.

The closing discipline is one sentence. Never compare a bond's coupon to an FD's coupon; compare after-tax yield to after-tax yield, weigh the credit rating, and only then decide.

Related guides

• NRI government bonds and the RBI Retail Direct route
• NRE FD versus FCNR FD: which deposit for an NRI
• Building an India corpus as an NRI
• REITs and InvITs for NRIs
• Tax-efficient investing for NRIs
• Capital gains tax for NRIs on shares and mutual funds
• Tax on NRO interest
• TDS for NRIs and how to claim refunds
• The lower-TDS certificate (Form 13, Section 197)
• DTAA mechanics: TRC, Form 10F and Section 90
• ITR filing for NRIs, AY 2026-27
• NRE, NRO and FCNR accounts explained
• All Investments guides
• All Taxation guides

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This guide is for general information and reflects the rules as understood in June 2026. It is not tax, legal, or investment advice. FEMA conditions, TDS rates, DTAA relief, and the treatment of a specific instrument depend on your residency, your country of tax residence, and the exact terms of the bond, including whether it is listed and whether it is a market-linked debenture. Credit ratings change and issuers default. Verify the prospectus eligibility, the current tax position, and the repatriation route with a qualified chartered accountant or SEBI-registered adviser before investing.