- The Centre removed all taxes on income and gains from Indian government securities for foreign investors
- The Income Tax Amendment Ordinance, 2026 exempts FIIs from tax on interest income and capital gains
- The ordinance applies retrospectively from April 1, 2026, reducing LTCG tax to zero on G-Secs
The Centre has removed all taxes on income and gains earned by foreign investors from Indian government securities, a move aimed at making the country's sovereign debt market more attractive to global capital.
The government on Thursday issued the Income Tax Amendment Ordinance, 2026, exempting foreign institutional investors (FIIs) from paying tax on interest income earned from government securities (G-Secs). The ordinance also eliminates capital gains tax on the sale or transfer of such securities.
The changes will take effect retrospectively from April 1, 2026. Follow Markets Live Updates
"In line with the Government's commitment to strengthen India's position as a leading global investment destination and to deepen the capital market, the Ministry of Finance has taken a series of measures aimed at enhancing the ease of investment for individual Persons Resident Outside India (PROIs) and Foreign Portfolio Investors (FPIs), and to attract stable long-term foreign capital flows," said the government in a statement.
Under the revised framework, the long-term capital gains (LTCG) tax on government securities has been reduced from 12.5 per cent to zero. The withholding tax on interest income from these securities has also been scrapped, bringing the rate down from 20 per cent to nil.
As a result, returns earned by foreign investors from investments in Indian sovereign bonds will effectively become tax-free.
The ordinance extends similar tax exemptions to the Bank for International Settlements (BIS), the Switzerland-based international financial institution that serves central banks worldwide.
The government believes the tax overhaul will strengthen India's appeal among global debt investors at a time when the country's bond market is becoming increasingly integrated with international financial markets.
The decision comes as India seeks to deepen its sovereign debt market and attract a larger pool of long-term overseas capital. Analysts expect the tax exemptions to support demand for government bonds and further improve the competitiveness of Indian debt relative to other emerging-market fixed-income instruments.
"These reforms aim to reduce operational complexities, simplify market access, and provide a more seamless investment experience comparable with leading international financial markets. These measures are expected to expand the investor base for Indian equities and Government Securities and encourage wider participation from global investors seeking exposure to one of the world's fastest-growing major economies," added the government statement.
Nehal Sampat, Partner, Price Waterhouse & Co LLP, told NDTV, "The ordinance issued by the Government exempts capital gains and interest earned by FPIs from tax WEF 1 April 2026. The exemption is subject to FPIs "furnishing information to be prescribed", which requirements will, hopefully, be procedural in nature and not substantive. Funds and Offshore Banking Units in IFSC, registered as FPIs, may also be eligible for the exemption. Removal of this "friction" may also assist in inclusion of Government securities in global bond indices in a larger way, which could trigger more inflows into India eventually."
