Section 10(4)(i): Tax Exemption on Interest and Redemption Premium for Non-Residents
Section 10(4)(i) of the Income-tax Act, 1961 provides an exemption for certain interest and redemption-premium income received by a non-resident from securities or bonds specifically notified by the Central Government. The exemption is instrument-specific; it does not cover every bond or security held by a non-resident.
Meaning of Section 10(4)(i)
Under Section 10(4)(i) of the Income-tax Act, 1961, income earned by a non-resident from interest on Central Government-notified securities or bonds, including a premium received when such bonds are redeemed, is excluded from total income, subject to the scope of the notification.
The proviso prevents the Central Government from specifying further securities or bonds under this particular exemption on or after 1 June 2002. It does not automatically withdraw the exemption for instruments validly notified earlier.
Eligibility and Conditions for Exemption
- Non-resident status: The taxpayer must qualify as a non-resident under the applicable income-tax law for the relevant year.
- Notified instrument: The security or bond must fall within a notification issued by the Central Government for the purposes of Section 10(4)(i).
- Qualifying receipt: The income must be interest on the notified security or bond, or a qualifying premium on redemption of a notified bond.
- Notification terms: Any instrument-specific eligibility conditions must be satisfied.
- Supporting evidence: The taxpayer should retain the bond or security details, proof of holding, interest or redemption statements, and the relevant notification.
Notified Securities and Historical Notification
The original reference identifies Notification S.O. 3331 dated 19 October 1965 in connection with specified securities. The exemption should not be claimed merely on the basis of that citation: verify the actual instrument against the notification and any subsequent amendments or applicable clarifications.
For the statutory text and official guidance, see the Income Tax Department's Section 10 page and its guide to income not chargeable in the hands of non-residents.
How Much Income Is Exempt?
Where the conditions are fulfilled, the full amount of qualifying interest or redemption premium is exempt. The provision does not establish a general rupee ceiling for qualifying receipts; the decisive question is whether the instrument and income satisfy the statutory and notification requirements.
| Income or investment | Treatment under Section 10(4)(i) |
|---|---|
| Interest on a security specifically notified under this clause | Exempt for an eligible non-resident, subject to the notification |
| Premium on redemption of a qualifying notified bond | Exempt where covered by the provision and notification |
| Interest on an ordinary, non-notified corporate bond | Not exempt merely because the investor is a non-resident |
| Interest on a Non-Resident (External) bank account | Separate rules apply; historically covered by Section 10(4)(ii), not this clause |
Illustrative Example
Suppose a non-resident receives Rs. 45,000 as interest and Rs. 12,000 as a redemption premium on a security that is demonstrably covered by a valid notification under Section 10(4)(i). Assuming all conditions are met, the total qualifying amount of Rs. 57,000 would be exempt under the provision for a year governed by the 1961 Act. If the security was not notified, the exemption would not apply on these facts.
Distinction from Other NRI Interest Exemptions
Section 10(4)(i) should not be confused with Section 10(4)(ii), which deals with interest on qualifying Non-Resident (External) accounts, or Section 10(4B), which concerns interest on certain notified savings certificates subscribed to in convertible foreign exchange. Each provision has different eligibility requirements. For tax years governed by the Income-tax Act, 2025, refer to the new Act and its schedules rather than relying only on the old numbering.
Official Legal References
- Income-tax Act, 1961 - Section 10, including clause (4)(i)
- Income-tax Act, 2025 - official legislation (PDF)
- Income Tax Department - Non-Resident FAQs
- Income Tax Department - Non-Resident Income Exemptions
Updated: 10 October 2026. Tax treatment depends on the applicable tax year, statutory provisions, notification and facts of the investment.