NRIs and Government Bonds: How the Fully Accessible Route Lets Non-Residents Buy G-Secs With No Ceiling

On 30 March 2020 the Reserve Bank of India issued A.P. (DIR Series) Circular No. 25 (reference RBI/2019-20/200), opening a channel called the Fully Accessible Route, or FAR, for investment by non-residents in Government of India securities. The route took effect on 1 April 2020, and its central sentence is unusually short for a foreign-exchange rule: "There shall be no quantitative limit on investment by eligible investors in the specified securities." For a non-resident Indian weighing a sovereign bond against an NRE fixed deposit, that sentence matters, because older routes for foreign money into gilts were rationed by caps. This guide sets out what FAR permits under the Foreign Exchange Management Act, how the coupon and any capital gain are taxed in India and abroad, and how the money moves back out.

FEMA / DTAA Position

What the 2020 circular actually did

The circular was issued under Sections 10(4) and 11(1) of FEMA 1999, the provisions that let the RBI direct authorised dealers on how they handle foreign-exchange transactions. It was accompanied on the same date, 30 March 2020, by the Fully Accessible Route (Reserve Bank) Directions, reference FMRD.FMSD.No.25/14.01.006/2019-20, which set the operational rules. The original circular is on rbi.org.in.

Three features define FAR, and each is stated in the 2020 documents:

The phrase "specified securities" is the one most often misread. FAR does not open every government bond to unlimited non-resident ownership. It opens only the securities that the RBI has named for the route, and the RBI adds to that list over time. A bond outside the list is still governed by the Medium Term Framework, which works through limits, or by the Voluntary Retention Route, which trades a minimum retention commitment for operational relaxations. Check that a bond's ISIN is on the RBI's current FAR list before buying.

Where NRIs sit within the framework

The briefing note on the circular is precise about the investor class: Foreign Portfolio Investors, NRIs and OCIs "may invest as permitted under the Debt Regulations". In other words, FAR removes the quantitative ceiling, but it does not displace the separate FEMA rules on how an NRI may hold debt instruments. Those rules, framed under the Foreign Exchange Management (Debt Instruments) Regulations, decide which account funds the purchase and whether the proceeds can be taken abroad, which we cover in the repatriation section below. Our NRI stock-market explainer covers the equity-side equivalent.

The treaty layer

A tax treaty does not change what FEMA permits; it only allocates taxing rights on the income. For G-Secs, the two income streams are interest (the coupon) and capital gains (if the bond is sold before maturity at a profit). The DTAA rates Oquilia holds for the three most common NRI countries of residence are:

No treaty in this table exempts capital gains from Indian tax. A gain on a G-Sec sold before maturity remains taxable in India at the rates the Income-tax Act sets, and the treaty's role is to stop the same gain being taxed twice, through a foreign tax credit in the country of residence.

Tax Treatment in India

Interest on G-Secs is taxable, even when paid into an NRE account

Coupon interest on a government bond is ordinary income for a non-resident. It is not covered by the exemption in Section 10(4)(ii) of the Income-tax Act, which applies only to interest earned on balances held in a Non-Resident (External) account. The distinction catches many investors out: an NRI who buys a G-Sec using NRE funds, and has the coupon credited back to that NRE account, still has taxable interest income, because the source of the income is the bond and not the deposit.

Withholding under Section 195

When interest is paid to a non-resident, the payer withholds tax under Section 195. The Oquilia statute catalogue summarises the rule in one line: withholding is at the DTAA rate or the rate in the Income-tax Act, whichever is lower. To claim the treaty rate, the NRI must supply the payer with a valid Tax Residency Certificate from the country of residence, Form 10F, and a PAN. Without those documents, the payer applies the domestic rate. Tax deducted shows in the investor's Form 26AS and can be claimed against final liability in the return. Our glossary entry on TDS explains how the credit flows through.

Slab rates, surcharge and cess

Where interest is assessed at normal rates, an NRI individual is taxed on the same slab structure as a resident. For FY 2025-26 under the new regime the slabs are:

Two adjustments then apply. A surcharge of 10% applies where total income exceeds Rs 50 lakh, 15% above Rs 1 crore, and 25% above Rs 2 crore; under the new regime the surcharge is capped at 25% even above Rs 5 crore, whereas the old regime retains 37% at that level. A health and education cess of 4% is levied on tax plus surcharge. The Section 87A rebate (Rs 60,000 under the new regime for FY 2025-26, on income up to Rs 12 lakh) is available only to resident individuals, so a non-resident cannot use it to reduce tax on G-Sec interest.

You can model the combined effect of slab, surcharge and cess on your Indian-source income with the NRI income tax calculator.

Capital gains on sale before maturity

A G-Sec held to maturity is redeemed at face value, so an investor who bought at or near par usually has no capital gain. A bond sold in the secondary market before maturity can produce a gain or a loss, because prices move inversely with yields; see our entry on yield to maturity for the mechanics. Following the Budget 2024 changes, Oquilia's treaty data sets India's long-term capital gains rate at 12.5%, with no indexation, and a short-term gain is added to income and taxed at the slab rates in the table above. The rules on what counts as long-term or short-term are set out in the glossary entry on LTCG and the companion entry on STCG. Because India retains taxing rights over these gains under all three treaties listed earlier, there is no treaty route to a nil Indian rate.

A worked example

Consider an NRI resident in the United Kingdom who holds Rs 20,00,000 of face value in a FAR-eligible G-Sec and receives Rs 1,40,000 of coupon interest in FY 2025-26 (a 7% coupon, used here purely for illustration). With a valid TRC and Form 10F, the payer withholds at the lower of the Act rate and the India-UK treaty cap of 15%. On a 15% treaty rate, the Indian tax on that interest would be Rs 21,000. If final liability on the return works out lower than the amount withheld, the excess is claimed as a tax refund.

Tax Treatment Abroad

Residence-based taxation and the foreign tax credit

Most NRIs are tax resident somewhere else, and that country normally taxes its residents on worldwide income. The Indian G-Sec coupon therefore appears twice: once in India as source country and once in the country of residence. Article 24 of the India-USA treaty provides that a foreign tax credit is available in the country of residence, which is how the double charge is resolved.

Country-specific points

For the United States, the treaty in force since 12 September 1991 caps Indian tax on interest at 15%, and US citizens remain taxable in the US on worldwide income regardless of where they live.

For the United Kingdom, the treaty in force since 26 October 1993 also caps interest at 15%. Article 4 contains the tie-breaker rule for anyone who could be treated as resident in both countries in the same year, which is common in the year someone moves. The residential status test in India must be run separately from the UK's own test.

For the United Arab Emirates, the treaty in force since 22 September 1993 caps interest at 12.5%. Oquilia's treaty notes flag that a UAE Tax Residency Certificate requires proof of establishment in the UAE. Where the residence country levies no personal income tax on the interest, there is no foreign tax against which Indian tax can be credited, so the Indian withholding becomes the final cost. That makes the 12.5% treaty rate, rather than the domestic rate, the figure that matters.

To compare the relief under each treaty, run your figures through the DTAA benefit calculator.

Repatriation Mechanics

Which account funds the purchase

How a G-Sec is paid for decides whether the proceeds can leave India freely. Under FEMA, the source of funds carries through to the investment, and the account type is the deciding factor:

An NRI who buys a FAR bond from an NRE account can, on maturity or sale, credit the proceeds back to that NRE account and remit them abroad without a ceiling. If the bond was bought from an NRO account, the proceeds return to NRO, and remittance abroad then falls under the NRO facility of USD 1 million per financial year, covered in our NRO repatriation guide. Coupons paid on NRO-funded holdings likewise go back to NRO. The FCNR deposit entry explains how foreign-currency deposits are routed into rupee investments.

Paperwork on the way out

Outward remittance from an NRO account requires a declaration on Form 15CA, filed on the income-tax e-filing portal, and, depending on the amount and the nature of the payment, a chartered accountant's certificate on Form 15CB confirming that Indian tax has been paid or withheld. Banks will not release an NRO remittance without these.

Holding the bonds

G-Secs are held electronically, so the holding account must be linked to the correct NRE or NRO bank account; a FAR bond bought with NRE money but linked to an NRO account can turn repatriable proceeds into non-repatriable ones. Use the repatriation calculator to estimate how much of a given balance can be sent abroad in a year.

FAQ

Is there really no limit on how much an NRI can invest in FAR bonds?

Yes, within the scope of the route. RBI Circular No. 25 of 30 March 2020 says there is "no quantitative limit" on investment by eligible investors in the specified securities. The absence of a cap applies only to bonds the RBI has notified for FAR; bonds outside that list remain under the Medium Term Framework or the Voluntary Retention Route.

Can OCI cardholders use the Fully Accessible Route?

Yes. The 2020 framework names FPIs, NRIs and OCIs as investors who may invest as permitted under the Debt Regulations, and all three are persons resident outside India within the meaning of Section 2(w) of FEMA 1999.

Is G-Sec interest tax-free if it is credited to my NRE account?

No. The NRE exemption in Section 10(4)(ii) of the Income-tax Act covers interest on the NRE account balance itself. Coupon interest on a government bond is taxable in India, with tax withheld under Section 195 at the lower of the Act rate and the treaty rate.

What withholding rate applies if I live in the United States?

The India-USA treaty, in force since 12 September 1991, caps Indian tax on interest at 15%. To get that rate, you must give the payer a US Tax Residency Certificate, Form 10F and your PAN; otherwise the domestic rate applies.

Are capital gains on G-Secs exempt under any DTAA?

No. Under the India-USA, India-UK and India-UAE treaties, India retains the right to tax capital gains on these securities. Oquilia's treaty data applies a 12.5% long-term rate, and a foreign tax credit in your country of residence is the route to relief from double taxation.

Can I send the maturity proceeds abroad?

If the bond was bought from an NRE account, the proceeds are freely repatriable. If it was bought from an NRO account, remittance abroad falls within the USD 1 million per financial year NRO facility and needs Form 15CA, with Form 15CB where required.

This explainer is general information based on RBI Circular No. 25 dated 30 March 2020, the Income-tax Act as applied for FY 2025-26 and the India-USA, India-UK and India-UAE tax treaties. It is not tax or investment advice. Confirm the current list of FAR-eligible securities on rbi.org.in, and the text of FEMA 1999 on indiacode.nic.in, before acting.