NRI Investing in Government Securities (G-Secs)
Meaning of Government Securities
- Debt instruments issued by the Central or State Governments to raise funds.
- Types:
- Treasury Bills (T-Bills): Short-term, maturities of 91, 182, or 364 days.
- Government Bonds: Long-term, maturities from 5 to 40 years.
- Considered safe investments due to sovereign backing and minimal default risk.
Investment Eligibility under FEMA
Permitted Avenues for NRIs:
- RBI Retail Direct Account:
- NRIs can invest in G-Secs, SDLs, and T-Bills.
- Not allowed: Sovereign Gold Bonds (SGBs) and Floating Rate Bonds.
- Funding sources: NRE, NRO, and FCNR accounts.
- Non-PIS (Portfolio Investment Scheme) NRI Account via Brokers:
- Investments must be funded only from NRO accounts.
Repatriability:
- NRIs can invest on Repatriable (via NRE/FCNR) or Non-Repatriable (via NRO) basis.
- No general FEMA restrictions on NRI investment in G-Secs.
Tax Implications (India)
Interest Income:
- Taxable under the head “Income from Other Sources.”
- Taxed at applicable slab rates for NRIs.
Capital Gains:
- Short-Term Capital Gains (STCG):
- If sold within 12 months.
- Taxed at 20% under Section 111A.
- Long-Term Capital Gains (LTCG):
- If held more than 12 months.
- Taxed at 12.5% (No indexation) under Section 112.
NRI Investing in Public Provident Fund (PPF)
Meaning of PPF
- A long-term, government-backed savings scheme with tax-free returns and principal.
- Tenure: 15 years, extendable in 5-year blocks.
FEMA Guidelines
Eligibility:
- NRIs cannot open new PPF accounts.
- Existing accounts can be maintained if opened while resident in India.
Conditions:
- Annual minimum contribution: ₹500 to keep the account active.
- Contributions allowed via NRE/NRO/FCNR accounts.
- Account closure mandatory at maturity (15 years).
- Proceeds are credited to NRO account.
- Repatriation limit: Up to USD 1 million/year under RBI guidelines.
Tax Implications
- Interest and maturity proceeds: Fully exempt under Section 10(11) of the Income Tax Act.
- Investments eligible for Section 80C deduction (up to ₹1.5 lakh/year) only if the NRI has Indian taxable income.
✅ Key Takeaways:
- Government Securities offer a viable investment option for NRIs, with flexible repatriation and moderate tax obligations.
- PPF accounts can only be continued (not newly opened) and are tax-exempt, but subject to repatriation limits and maturity constraints.
- Proper channeling of funds through NRE/NRO/FCNR accounts and adherence to FEMA rules is crucial.