Hybrid instruments, like compulsorily convertible debentures (CCDs), have gained prominence, particularly with the rise of startups in India. CCDs are essentially debentures that must be converted into equity shares after a predetermined period. They offer investors the opportunity to earn regular interest income while also participating in potential equity appreciation. However, CCD holders don't enjoy voting rights or dividend eligibility. Foreign investors can invest in CCDs issued by Indian companies under the foreign direct investment (FDI) route, with CCDs treated as equity for exchange control laws. Pricing guidelines dictate upfront determination of conversion formula and forbid conversion at a price lower than fair market value at issuance. Unlisted CCDs' purchase or subscription must adhere to tax-prescribed valuation norms; acquiring them below these norms incurs tax akin to other income. Interest income taxability on CCDs is vital for investors. Typically, tax laws subject interest income to applicable slab rates or maximum marginal rates for residents and relevant tax treaty rates for non-residents. Non-residents seeking favorable tax treaty rates must establish 'beneficial ownership' of interest income. This entails exclusive possession and control over the income, with the freedom to utilize it without constraints from contractual, legal, or economic arrangements with third parties, as determined by tax courts.