Govt issues ordinance to exempt FIIs from capital gains tax on Government Securities
New Delhi, June 5
The Centre has promulgated the Income-tax Ordinance, 2026, granting tax exemption to Foreign Institutional Investors on capital gains and interest income arising from investments in government securities.
The Ordinance, published in the Gazette of India on Friday, amends the Income-tax Act, 2025. It has been brought into force retrospectively from April 1, 2026.
According to the notification, "Any interest on Government security, and any capital gains arising from the sale, exchange or transfer of such Government security" shall be exempt in the case of "a foreign institutional investor."
The exemption, however, comes with a compliance condition. The Gazette states that "Such exemption shall be subject to furnishing of information in such form and manner, as may be prescribed."
The Ordinance also extends a similar exemption to the Bank for International Settlements (BIS). The included provision exempts "Any interest on Government security, and any capital gains arising from the sale, exchange or transfer of such Government security" earned by the BIS.
Further, the notification inserts a new Note 4 to define the entities covered under the exemption. It clarifies that "Foreign Institutional Investor" shall have the meaning assigned to it in section 210(6)(a) of the Income-tax Act, 2025.
The Ordinance also specifies that "Government security" shall have the same meaning as assigned to it in section 2(f) of the Government Securities Act, 2006.
The move is expected to enhance the attractiveness of India's sovereign debt market for foreign investors by removing tax costs associated with investments in government securities.
Foreign Portfolio Investors (FPIs) have pulled out a net Rs 2,63,784 crore from India, so far in 2026, amid heightened global uncertainty, geopolitical tensions and shifting investment preferences.
The amendment comes through an Ordinance route as Parliament is not in session.
The Income-tax (Amendment) Ordinance, 2026 is deemed to have come into force from April 1, 2026.
— ANI
Reader Comments
Good news for India's bond markets! Removing capital gains tax on G-secs will attract more foreign liquidity into our debt market. The compliance condition ensures transparency. If it helps stabilize the rupee and lower borrowing costs for the government, I'm all for it. 🇮🇳
Why only FIIs? What about domestic investors who also buy govt bonds? Our retail investors are already facing heavy taxation on debt funds. This kind of preferential treatment for foreign capital feels unfair. Par for the course though—government always prioritizes foreign inflows over local savers.
As an investor looking at Asian markets, this is a smart move by India. Tax exemption on G-secs makes Indian bonds competitive with other emerging markets like Indonesia or Brazil. The timing is crucial given the global uncertainty. Now let's see if the compliance requirements are reasonable or too bureaucratic.
Just another Ordinance while Parliament is not in session... 🥱 This is becoming a habit now. The govt should have debated this in Parliament. Also, retrospective application from April 1 is concerning—investors need certainty, not retroactive tax changes. But hey, at least they're trying to reverse the FII outflow mess.
This is a double-edged sword. On one hand, it might reduce India's borrowing costs and bring in much-needed foreign capital. On the other hand, FIIs can be fickle—they pulled out Rs 2.6 lakh crore already! Are we just going to keep giving tax breaks every time there's a panic? We need long-term investors, not fair
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