Indian Income Tax | NRI Bond Interest

Section 10(15)(iid): Income Tax Exemption for Interest on Notified Bonds Held by NRIs

Section 10(15)(iid) of the Income-tax Act, 1961 provided a specific exemption for interest payable to a non-resident Indian on certain Central Government-notified bonds. The relief applied only where the bond and investment satisfied the statutory conditions; it was not a general exemption for all NRI deposits, bonds or fixed-income investments.

Primary beneficiaryQualifying non-resident Indian

Income coveredInterest on specifically notified bonds

Exempt amountEligible interest in full

Critical restrictionNo new bond notification after 1 June 2002

Meaning and scope of Section 10(15)(iid)

Under the 1961 Act, this clause dealt with interest on bonds notified by the Central Government in the Official Gazette for this purpose, subscribed to by a non-resident Indian (NRI) using foreign exchange. For this provision, the statutory definition of NRI and the terms of the particular notified issue are relevant. A bond is not eligible merely because it is issued by a government entity or purchased by a person living abroad.

Interest means the return payable on the qualifying bond according to its issue terms. The exemption concerns eligible interest, not necessarily gains on sale, unrelated investment income or every payment connected with the bond.

Eligibility and conditions for the exemption

Notified bond: The security must be covered by a valid Central Government notification under the clause, and the holder must meet the issue-specific requirements.
Foreign exchange subscription: The qualifying NRI must have subscribed to the bonds in foreign exchange in accordance with the prescribed terms.
Non-repatriation: The principal and interest are subject to the statutory non-repatriation condition. Review the original bond terms and applicable foreign exchange rules.
Later change of residential status: Where the statutory conditions are met, a qualifying original subscriber does not lose the benefit solely because the person subsequently becomes resident in India.
Nominee, survivor or donee: The provision extends the specified benefit to persons receiving qualifying bonds in the circumstances expressly recognised by the clause, subject to its conditions.
Premature encashment: If the bonds are encashed before maturity, the exemption is not available for the previous year in which premature encashment occurs, as specified by the provision.

Which bonds are eligible?

Only issues specifically notified under Section 10(15)(iid) qualify. No bonds could be newly notified under this clause after 1 June 2002. This makes it a legacy provision relevant chiefly to qualifying older investments and the historical tax treatment of their interest. Before claiming the exemption, check the bond certificate, notification number, original issue conditions and relevant year of receipt or accrual.

How much interest is exempt?

Where all conditions are met, the entire qualifying interest is excluded from taxable income under this clause. There is no general rupee ceiling stated in this provision. However, a non-qualifying bond or a failure to satisfy the prescribed conditions does not receive the exemption simply because the investor is an NRI.

Examples of how the rules apply

Example 1 - qualifying investment: An NRI subscribed in foreign exchange to an eligible notified bond under the prescribed non-repatriation terms. Interest on the bond may qualify for exemption, subject to the notification and the statutory conditions.

Example 2 - change in residency: The original eligible NRI later becomes an Indian resident while continuing to hold the qualifying bond. The change in status alone does not ordinarily withdraw the clause's protection.

Example 3 - ordinary NRI investment: An NRI buys a modern corporate bond that was never notified under this provision. Its interest does not become exempt under Section 10(15)(iid).

Documentation and tax reporting

Original bond certificate, allotment advice and relevant government notification.
Evidence of NRI status and subscription made in foreign exchange.
Bond terms demonstrating the non-repatriation restriction.
Interest certificates and any TDS documentation.
Transfer, nomination, gift or survivorship records, where applicable.
Maturity or encashment evidence, especially if redeemed early.

Applicable law from 1 April 2026

The section numbering discussed on this page refers to the Income-tax Act, 1961. The Income-tax Act, 2025 took effect on 1 April 2026. For income falling within the newer regime, consult the corresponding enacted provisions, applicable schedules and rules, and any transitional treatment. Do not assume that Section 10(15)(iid) is the operative section number under the 2025 Act.

Official legal references and related reading

Updated 10 October 2026. This is general information. Verify the precise notification, bond terms and law applicable to the relevant tax year before relying on an exemption.