India's New Tax Ordinance Boosts Foreign Investment in Government Securities

The Indian government has enacted an amended Income-tax Ordinance, granting tax exemptions to Foreign Institutional Investors and the Bank for International Settlements on capital gains and interest from government securities. This move, effective from April 2026, aims to make India's sovereign debt market more appealing to foreign investors.

The Indian government's recent implementation of the Income-tax (Amendment) Ordinance, 2026, offers significant tax exemptions to Foreign Institutional Investors (FIIs) and the Bank for International Settlements (BIS) on capital gains and interest from investments in government securities.

Published in the Gazette of India, this ordinance retroactively takes effect from April 1, 2026, amending the Income-tax Act of 2025. FIIs and BIS will benefit from waived taxes on any interest or capital gains related to the sale, exchange, or transfer of government securities, contingent upon compliance with the prescribed information submission process.

This legislative adjustment is anticipated to elevate the allure of India's sovereign debt market to international investors by minimizing tax-related expenses on government securities investments. The initiative comes during a time when Foreign Portfolio Investors (FPIs) have withdrawn substantial funds from the country amid global uncertainties.