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Indian Income Tax | NRI Exemptions

Section 10(4B) Income Tax Exemption for NRI Savings Certificate Interest

Section 10(4B) of the Income-tax Act, 1961 provides a narrowly defined exemption for interest on certain Central Government savings certificates held by eligible non-resident Indians or persons of Indian origin. The exemption is not available for every savings certificate or every NRI investment.

Important eligibility restriction: The savings certificates must have been issued before 1 June 2002 and specifically notified by the Central Government. This is a legacy exemption, not a general exemption for new savings-certificate investments.
Relevant provisionSection 10(4B), Income-tax Act, 1961
Eligible taxpayerNon-resident individual who is an Indian citizen or person of Indian origin
Eligible incomeInterest on qualifying notified Central Government savings certificates
Extent of exemptionEntire qualifying interest, subject to statutory conditions

What does Section 10(4B) provide?

Under Section 10(4B) of the Income-tax Act, 1961, interest income is excluded from total income where it arises from Central Government savings certificates meeting the notification and issue-date requirements and the individual satisfies the specified non-resident and foreign-exchange subscription conditions.

The section belongs to Chapter III, which deals with incomes that do not form part of total income. It is an exemption from income tax on qualifying interest, not a deduction from taxable income.

Who is eligible for the exemption?

  1. Non-resident status: The taxpayer must be an individual who is non-resident for the relevant tax period under the applicable income-tax residence rules.
  2. Indian citizenship or origin: The individual must be a citizen of India or a person of Indian origin as defined for this clause.
  3. Qualifying certificates: The interest must relate to Central Government savings certificates notified for this exemption and issued before 1 June 2002.
  4. Foreign-exchange subscription: The individual must have subscribed using convertible foreign exchange remitted from outside India in accordance with the applicable foreign-exchange law and rules.

Meaning of important legal terms

Person of Indian origin (PIO)

For this provision, an individual is treated as a person of Indian origin if the individual, either parent, or any grandparent was born in undivided India. This is the statutory test for this particular exemption; it should not be confused with the separate immigration categories of OCI or PIO cards.

Convertible foreign exchange

Convertible foreign exchange refers to foreign exchange treated by the Reserve Bank of India as convertible for the relevant foreign-exchange-law purposes. Evidence of the overseas remittance and subscription may be important when supporting an exemption claim.

Notified savings certificates

The exemption applies only to certificates issued by the Central Government and specified by notification in the Official Gazette. A certificate being a government savings product does not by itself establish eligibility under Section 10(4B).

How much interest is exempt?

Where every statutory requirement is satisfied, the full amount of interest attributable to the qualifying certificate is exempt under this provision. No general rupee ceiling is specified in the clause itself; however, the relevant notification and certificate terms must also be checked.

Interest on a certificate issued on or after 1 June 2002 cannot qualify under Section 10(4B), even if the investor is an NRI and subscribed using overseas funds.

Example of the exemption

Suppose an Indian citizen who is non-resident holds a Central Government savings certificate issued in May 2002, duly notified for Section 10(4B), and originally subscribed to it using qualifying convertible foreign exchange remitted from abroad. Interest arising on that certificate may be exempt, subject to verification of all applicable conditions. If the certificate was instead issued in July 2002, Section 10(4B) would not provide the exemption.

Documents to retain

  • Certificate details showing the issuing authority, issue date and certificate type.
  • The relevant Central Government notification establishing that the certificate is covered.
  • Proof of subscription and remittance in convertible foreign exchange from outside India.
  • Evidence of non-resident status and Indian citizenship or qualifying Indian origin.
  • Interest statements and any supporting correspondence from the issuer.

Income-tax law from 1 April 2026

The Income Tax Department's non-resident guidance explains that the Income-tax Act, 2025 applies prospectively to tax years beginning on or after 1 April 2026. References to Section 10(4B) in this article identify the provision under the Income-tax Act, 1961. For income arising in tax year 2026-27 or later, taxpayers should check the corresponding provisions and transitional rules under the new Act rather than assuming the old section numbering continues unchanged.

Official references

Updated: 10 October 2026. This article provides general information; the tax treatment of a particular certificate depends on its issue date, notification, subscription history and the law applicable to the relevant tax year.